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Anne Margaret Kelly or McCall against Graham Kenneth McCall (Court of Session) [2024] CSOH 71 (26 July 2024)
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[2024] CSOH 71
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OUTER HOUSE, COURT OF SESSION
[2024] CSOH 71
F10/22
OPINION OF LADY CARMICHAEL
In the cause
ANNE MARGARET KELLY OR MCCALL
Pursuer
against
GRAHAM KENNETH MCCALL
Defender
Pursuer: Brabender KC, Wild; Drummond Miller LLP
Defender: Hayhow KC, Donachie; DAC Beachcroft Scotland LLP (for Levy and McCrae)
26 July 2024
Introduction
[1]
This an action for divorce in which both parties seek orders for financial provision.
[2]
The parties were married on 9 April 1994. They separated on 28 August 2020 which
is the relevant date for the purposes of the Family Law (Scotland) Act 1985. Unless
otherwise specified, references to statutory provisions are to provisions of that Act.
References to "CB" are to page numbers in the core bundle of documents.
2
Issues
[3]
The extent and value of the matrimonial property at the relevant date was the
subject of extensive agreement in a joint minute and supplementary joint minute. The
former matrimonial home had been sold with the net proceeds of £790,773 held by the
selling agents in an interest bearing account.
[4]
The following matters were not agreed.
Extent of matrimonial property
[5]
Although it was not the subject of agreement, the defender accepted in the course of
his evidence that he had an Aviva Pension relating to his employment during the marriage.
Its CETV at the relevant date was £9,095.24, vouched by 6/136 of process. The defender's
schedule of matrimonial property included it at £9,509, but there is no evidence to support
that higher value, and the figure looks to result from a mistranscription of the digits 5,
0 and 9.
[6]
There was a dispute as to whether the defender had at the relevant date a liability to
pay £500,000 to Bradley Beard.
[7]
The pursuer's position was that a sum of £19,500 in her Bank of Scotland
account xxx9468 was not matrimonial property because it was the remainder of a gift
from her mother. The defender disputed that. The defender maintained in evidence that
the parties loaned money to the pursuer's mother and that the sum either derived from
payment of that loan or from savings accrued by the pursuer from sums earned by the
parties during the marriage.
3
Value of matrimonial property
[8]
There were a number of disputes as to the relevant date balances of bank accounts,
and as to the amounts retained by the defender. There were also disputes in relation to
the contents of the matrimonial home, two motor vehicles (a Land Rover Defender, and
an Audi), and other items of moveable property.
[9]
The most significant dispute was as to the value of the parties' interests in Assynt
Holdings Limited ("Assynt") and in particular the director's loan due to the defender.
The following factual matters are not in dispute, although the significance of them, and
the inferences to be drawn from them, are.
[10]
At the relevant date Assynt's assets included two commercial loans, one to EKO
Grays Ltd ("EKO") for £747,740 and one to Radley House Investments Limited ("Radley")
for £1,537,250. EKO were redeveloping existing property in High Street, Grays, Essex so
as to produce both residential apartments and commercial premises there. The property
included a former public house known as the Pullman Tavern. Radley were redeveloping
a listed building in St Cross Road, Winchester, to create residential apartments.
[11]
The pursuer and the defender were both directors of Assynt, as were their three
children. The defender gave notice of a Special General Meeting ("SGM") to be held on
16 October 2020. The pursuer's directorship was terminated with immediate effect at that
meeting. On 28 September 2020, without reference to the pursuer, the defender extended
the company's accounting period from 31 March 2020 to 31 August 2020. The accounts for
that period contained a write down of assets which generated a loss of £1,877,013 for the
period. The EKO loan was written down by 90% and the Radley loan was written down
by 80%. The decisions about writing down the loans and by how much were decisions
made by the defender. He signed off the accounts on 19 October 2020.
4
[12]
Whether the written down loan values truly reflected the value of the company's
assets at the relevant date was the principal matter of contention.
[13]
There was a dispute also as to the value of the defender's shares in Drink Warehouse
UK Limited ("Drink Warehouse").
Division of property
[14]
The only respect in which either party suggested as his or her primary position that
I should depart from equal sharing was in relation to a submission by the defender as to the
economic advantage he said the pursuer derived from his help in setting up her business.
Summary of decision
[15]
I am satisfied that the marriage has broken down irretrievably and will grant decree
of divorce.
[16]
I concluded that the writing down of the loans to EKO and Radley by 90% and 80%
respectively was an artificial exercise undertaken by the defender with a deliberate view
to defeating in substantial part the pursuer's legitimate claims for financial provision on
divorce. There was no proper basis for writing down the loans in that way. The defender's
director's loan to Assynt was by far the most valuable asset at the relevant date. I found that
the values of the matrimonial property at the relevant date are those set out in the table
below.
Joint
Pursuer
Defender
Assets
Property
Overhall Farm
£790,733
Contents of Overhall
Farm
£15,000
5
Boat
£10,000
Trailer
£2,000
Inverkirkaig
£197,500
Pensions
EY Pension
£227,638
SPPA Pension
£40,811
EY Standard Life
Pension
£11,708
USS Pension
£15,136
Standard Life SIPP
£186,077
Standard Life SIPP
£841,431
MGN Pension
£236,574
MGN AVC
£11,531
Johnston Press Pension
£65,561
Aviva Pension (Johnson
Press)
£9,095
Bank accounts
NS&I 7741
£935
NS&I 7357
£241,875
NS&I 2657
£500
NS&I 2554
£527,233
NS&I 7221
£25,701
RBS 3939
£8,461
RBS 5459
£7,369
RBS 3778
£3
RBS 0045
£3
RBS 2435
£0
RBS 7644
£0
Nationwide 4991
£6,288
Bank of Scotland 2867
£4,148
Bank of Scotland 7367
£1,264
Bank of Scotland 8267
£3,179
Investments
Standard Life Shares
£998
Walker Crips
£62,937
Standard Life Portfolio
(joint)
£109,928
Standard Life Portfolio
(personal)
£423,658
Standard Life stocks and
shares ISA
£147,958
6
Standard Life stocks and
shares ISA
£145,914
Shares in McCall & Co
£199,750
Director's loan due from
McCall & Co
£4,201
Shares in Assynt
Holdings Ltd
£8,088
£86,657
Director's loan due from
Assynt Holdings Ltd
£2,276,536
Personal loan to Zebra
Homes Ltd capital
£500,000
Personal loan to Zebra
Homes Ltd
interest
£70,726
Shares in Last Mile
Limited
£860,267
Shares in Drink
Warehouse UK Ltd
£0
Cars
Land Rover
£50,000
Audi
£19,250
Totals
£1,202,869
£1,521,100
£5,730,653
Total matrimonial property £8,454,622
[17]
Fair sharing of the matrimonial property will be achieved in this case by equal
sharing, namely an allocation to each party of £4,227,311.
[18]
I have treated, as both senior counsel did, the parties as having retained in equal
shares their interests in Overhall Farm; Inverkirkaig; the very small sums in Royal Bank
of Scotland ("RBS") accounts xxx0045 and xxx3778; their Walker Crips investment; and
their joint Standard Life Portfolio. I have treated them as having retained equal shares
in the boat. For reasons explained elsewhere in this opinion, I found that the defender
had retained home contents worth £14,500 and that the pursuer had retained contents
worth £500. I found also that the defender had retained a horse trailer worth £2,000.
7
The balances retained by the parties respectively in NS&I account xxx7741 and RBS
accounts xxx3939 and xxx5459 are set out in paragraphs 274 and 276.
[19]
The pursuer has therefore retained £2,105,686. In order to achieve fair sharing, the
pursuer requires a balancing payment of £2,121,625. I have determined to make an order
for transfer by her of her interest in Inverkirkaig. She will be required to transfer her interest
when she has received the whole sum due to her from the defender. The agreed transfer
value of her interest in Inverkirkaig is £98,750. Accordingly, the total sum payable to the
pursuer will be £2,220,375.
[20]
Of that sum, a proportion can be met by making the orders sought by the pursuer
regarding the sums held on joint deposit receipt in respect of the sale of Overhall Farm; the
sums held jointly with Walker Crips; and the sums held jointly with Standard Life. I am
satisfied in principle that I ought to make those orders.
[21]
The sum held on deposit receipt was, in total £790,733. Interest may have
accrued on that sum. The values of the two investments as at 7 September 2023 were,
respectively, £63,369.80 and £117,703.25. Half of those sums is £485,903. I am conscious,
however, that the current values may be different, and accordingly, I cannot specify
precisely how much of the capital sum will have to be paid other than by payments to
account from those sources.
[22]
Neither party wishes to retain the boat, and I am content to order that it be sold, and
that the net proceeds be paid equally to each party.
[23]
For the reasons set out in paragraphs 315 to 319 I am satisfied that interest should
run on the sum of £1,179,055. Both parties recognised that further submissions would be
required in relation to the period during which interest should run, and that will be
addressed at a by order hearing.
8
The evidence
[24]
The pursuer gave evidence and led evidence from Greg Rowand, forensic
accountant, and Alan Bathgate, a motor vehicle examiner. She relied on the affidavit
evidence of Kristine Dickson, and of Anne Wilson. The defender gave evidence and
led evidence from Alan Robb, forensic accountant, and from Patrick Vanderhyde.
[25]
Both forensic accountants were qualified to give the evidence that they did, and
no issue was taken as to the expertise or independence of either.
The pursuer's case
The pursuer
[26]
The pursuer is a chartered accountant and is 56 years of age. I summarise her
evidence so far as relevant to the breakdown of the marriage elsewhere in this opinion.
[27]
The pursuer had hip surgery on 22 August 2020, and was an in-patient for 4 nights.
Shortly after that, on 28 August 2020, when the defender was away at the parties' property
at Inverkirkaig, the pursuer left the matrimonial home. She was still using crutches at that
time. When the defender got back he changed the locks. He told the pursuer that she could
have a key when she stopped being silly and came home. She had no access to the property
without seeking the defender's approval and obtaining a key from estate agents dealing
with the sale of the property.
[28]
The pursuer qualified as a chartered accountant in 1991 and worked with Ernst
and Young, where she had trained, until 1995. When she left she was an audit manager,
earning £30,000 per year. Between 1995 and 1997 she was the chief accountant for the
University of Strathclyde and earned £38,000 per year. She returned to Ernst and Young
9
as a senior manager in the business risk division earning £45,000 to £50,000 a year. She was
promoted to director of the firm's Scotland and Northern Ireland division of their national
business risk service line, and earned about £65,000 a year. The parties' twins were born
in 2000. When she returned from maternity leave she worked for 3 days each week. The
parties' third child was born in 2002. Her evidence was that her salary at that stage just
about covered childcare costs. She took a career break in 2005. She was a candidate on
the firm's partnership admission programme. She had completed assessment for the
programme in 1999 and had a detailed schedule of development for admission to the
partnership within 2 years. In taking a career break she seriously inhibited her career
opportunities and earning potential. Two colleagues who undertook the same assessment
and stayed with the firm became partners.
[29]
When all the children were at school in 2007 she returned to work 3 days each week
as a lecturer, earning around £38,000 pro rata. She continued to do that until 2015.
[30]
The defender worked away from home extensively. Between 2006 and 2009 he
would leave home in the early hours of a Monday morning and return on the Friday
evening. Between 2009 and 2014 he was based in Essex. He left home at 5.30am on Monday
mornings and returned around 6.00pm on Thursday evenings. The pursuer offered to move
to Essex with the children or to return to a chartered accountant role. If she had earned
more, then the defender could have worked locally without impacting on the family
finances. He was adamant that he did not wish to split the career load and that he wished to
pursuer his chosen career path.
[31]
In 2015 the pursuer decided to set up her own accountancy practice as a means to
return to higher earnings and the job for which she had been trained. She is the sole director
of McCall & Co Professional Services Limited.
10
[32]
In 2014 the defender's employment with Forefront Utilities came to an end when that
company was sold. He held an equity stake in it, and realised £1.4m from the sale. £1m was
put in NS&I account xxx2657 in the pursuer's name as she was a lower rate taxpayer. Two
payments in to the account of £999,500 and £500 in August 2014 were shown in 6/121 of
process. Royal Bank of Scotland statement for the parties' joint account xxx5459 (6/122)
showed a payment in of £999,500 on 8 January 2020, a payment out on the same day
of £995,075 to Assynt Holdings and a payment out of £4,445 to a NS&I income bonds
account the following day. Bank of Scotland statement for account xxx2268 in the name
of Assynt showed a payment in of £995,055 on 8 January 2020.
[33]
After that arguments between the parties involved the defender demanding to have
the money transferred back to him. He controlled the parties' finances closely and required
a bank reconciliation from the pursuer each month with an explanation of spending and
savings.
[34]
In 2015 the defender got a job with ICR Ltd. He worked in Aberdeen from Monday
to Thursday. He moved to Energetics in Hamilton in 2016 and worked in Hamilton and
from home. Energetics was sold in 2016. The defender again had an equity stake and
realised £4m from the sale. A sum of £750,000 was rolled over into a new shareholding
with the new company, Last Mile Hold Co 1 Limited. The defender placed the funds
from the sale in various NS&I accounts in the individual and joint names of the parties.
[35]
When the pursuer left for a period in 2019, the defender accessed the pursuer's NS&I
account and changed the password. He reinstated it on her return. When the pursuer left
on 28 August 2020, the defender transferred the funds from their joint NS&I account to his
individual account. The following day he opened a new NS&I account and transferred all
11
the monies held in his name to the new account. Transfers in to the new account xxx2752
were shown on 29 August 2020 in 7/129.
[36]
The defender invested most of the money from the proceeds of the business sale
from which he benefited in property developments in the south east of England. His former
partner in Forefront Utilities, Bradley Beard, introduced the defender to a financial adviser,
Patrick Vanderhyde. The pursuer suggested that it would be more tax efficient for the
defender to invest through a limited company. He agreed and set up Assynt Holdings
Limited on 5 April 2019. On incorporation the defender held 75 % of the shares, the
pursuer 7% and their children 18% equally among them. The company made investments
in the form of loans to property developers.
[37]
On 6 September 2020 the defender asked the pursuer to resign as director. He
made the same request by email the next day. On 17 September 2020 the pursuer received
notification of a SGM to be held at the home of the defender's parents and a notice of
resolution seeking her removal from office as a director. The SGM was held on 16 October,
and her directorship was terminated with immediate effect. The pursuer did not attend
the meeting because it was being held at the home of the defender's parents. The accounts
for 2021 narrated that she had resigned, but that was not true. The increase in the defender's
shareholding had prevented her and her children from asking for the accounts to be audited.
[38]
On 28 September 2020 the defender extended the company's accounting period from
31 March 2020 to 31 August 2020 without telling the pursuer. There were at that time no
draft accounts for the year to 31 March 2020. Normally a period of 9 months from the year
end was allowed for the production of accounts, but during the pandemic that period had
been extended to 12 months. That meant that if the year end had stayed as 31 March, the
12
company would have had until 31 March 2021 to provide accounts. With a year end of
31 August, the company would have had until 31 August 2021.
[39]
In the course of September 2020 the defender issued an allotment of share capital
increasing his own shareholding to 98%.
[40]
The pursuer and the defender funded Assynt by way of a director's loan from
their NS&I accounts. Assynt's strategy was to invest only in the redevelopment of existing
properties, so as to mitigate risk. The sums loaned were relative to the value of the original
land and property, and Assynt would take the first security over the land and property. The
defender often emailed documents to the pursuer for her to print off. She saw documents
relating to the Radley House loan and discussed the matter with the defender. She knew the
sums loaned were less than the value of the property over which security would be taken.
Had she anticipated that the losses were to be of the nature that the defender contended they
had been, she would have recommended having the properties surveyed with a view to
calling in the securities.
[41]
Assynt loaned Radley £1,537,250 by agreement dated 29 January 2020. The loan was
due for repayment on 29 January 2022. Assynt held a security over the land and property
of that company dated 29 January 2020 (6/95). After the defender wrote down the loan,
Assynt advanced a further £220,000 to Radley on 12 April 2021. The pursuer learned from
a response by Dean Honeyman, the director of Radley, to a specification of documents,
that that sum was repaid on Radley's behalf by one of their clients, HS Building and
Maintenance in lieu of settlement of an outstanding invoice (6/95, page 441 of Core Bundle).
Mr Honeyman's letter, dated 8 September 2023 also confirmed that interest of £138,352.50
had been paid on 1 April 2022. The payments from HS Building and Maintenance were
made not to Assynt, but to a personal HSBC account xxx8222 in the joint names of the
13
defender and Georgina Williams, as shown in 6/63 of process. The defender used the
money to fund the purchase of residential property at Campsie Glen in his sole name, as
shown in 7/118 and 6/21 of process.
[42]
The pursuer did not believe that the investment was risky and might not be
repaid. Radley's property, which was the subject of the charge, was purchased for a
total of £2,365,000, vouched by extracts from the Land Registry (6/59 and 6/60). The
pursuer visited the sites of both developments in February 2023 and took photographs
of the developments, which she produced. The pursuer's evidence was that all but one
of the apartments in the Radley development had been sold. The photographs show
developments that look complete and either fully or partly occupied. The pursuer produced
marketing material from Charters Estate Agents in Winchester, showing that the apartments
at the Radley development were marketed for between £450,000 and £750,000.
[43]
The repayment of the £220,000 on behalf of Radley was omitted from the accounts
of Assynt for the periods. In the 2021 and 2022 accounts the additional advance of £220,000
did appear, but both the loan and the interest were written down by 80%.
[44]
The pursuer had herself made inquiries at the Land Registry regarding the
discharges of securities associated with the loans by Assynt. The release of certain
properties from the charges in favour of Assynt had been pending since April 2022. She
checked as to whether they remained pending. She produced a list issued by the Land
Registry in relation to an inquiry on 7 September 2023. Shortly before the proof she saw
that Plot 4 at Radley House had been released consequent to a discharge signed by the
defender and witnessed by the defender's father on 10 May 2022. She had obtained
the discharge dated 7 March 2023 releasing the property at 61 High Street, Grays, from
the charge in favour of Assynt, again signed by the defender and witnessed by his father.
14
[45]
The loan agreement between EKO and Assynt is dated 26 September 2019 (6/53).
The loan was of £1,059,000 payable in two instalments. It was to be repaid on 26 September
2020. At the relevant date Assynt had advanced £747,740. The defender made a further
advance in September 2020. The pursuer maintained that the defender had no contractual
obligation to make a further advance, as EKO were by that time in breach of the original
agreement. Assynt had a security over the land and property held by EKO. The Land
Registry recorded a purchase price of £860,000 on 26 September 2019. EKO sold the
property for £1,600,000 on 7 March 2023. When the pursuer visited the site in 2023 a
business was trading from the ground floor retail unit, and there was evidence that people
were living in the flats. The security in favour of Assynt was discharged on 7 March 2023.
Assynt received funds on 29 June 2023 in respect of payments of capital (£1,075,185) and
interest (£364,779), shown on Bank of Scotland statement 6/96, page 601CB. EKO was struck
off for non-compliance with filing requirements and dissolved on 15 August 2023. There
were no objections from creditors, which caused the pursuer to think that settlement with
Assynt might have occurred at an earlier date.
[46]
The additional capital of £73,119 advanced in September 2020 was written down
by 90% in the 2021 and 2022 accounts. The interest on the loans to EKO was written down
by 100% in the 2022 accounts, not taking into account that 90% of the interest had already
been written off in earlier years. That resulted in an understatement of the company's
assets.
[47]
The full value of the director's loan was still declared outstanding in the accounts
for 2020, 2021 and 2022 despite the write off of the EKO and Radley loans, and the going
concern statement in the accounting policy notes asserted that the loans remained fully
recoverable.
15
[48]
Before Assynt was incorporated, the defender had invested by lending as an
individual. At the relevant date he was owed £500,000 by Zebra Homes Limited. The
loan was repaid with interest.
[49]
The defender did not mention to the pursuer making any commitment to Enterprise
House Limited. In the course of these proceedings she had seen only a letter dated 1 June
2020 from Patrick Vanderhyde countersigned by Bradley Beard which appeared to indicate
an intention to enter into an existing investment made by Bradley Beard for which security
was held over a property (Enterprise House) in Portsmouth.
[50]
The pursuer said that she had not received half of the contents of the matrimonial
home as the defender claimed. On 12 April 2021 she provided a list of the items she wanted
to recover. She was not given them. A schedule for sale of the property contained
photographs taken in October 2020 (6/101) showing furnished rooms. The furniture was
all new. The defender did not provide the pursuer with a key until 27 April 2021, 3 days
before the date of entry. At that time there was little furniture, the property was dirty and
a lot of rubbish had been left. There was some children's bedroom furniture left, and a desk.
She found and took wedding china and what was left of the parties' crystal. The pursuer
took photographs of the property (6/102). The defender claimed to have put items in
storage, but had not produced an inventory. She had not consented to items being put
in storage. The pursuer had researched the cost of replacing the furniture and applied a
discount of 50%, arriving at a figure of £12,250. The defender had retained a trailer acquired
new in 2019 and a ride-on lawnmower, acquired new in 2017. She estimated the value of
those items at the relevant date at £6,300.
[51]
The defender also retained a boat which had an insurance value of £25,000. The
parties owned a horse trailer which was stored at a farm near Kilmarnock. It was purchased
16
new in 2016 and had an insurance value of £4,000. The defender removed it from the farm.
He claimed to have donated it to Riding for the Disabled. The pursuer produced a letter
from Glasgow Riding for the Disabled Association (6/58) stating that they had not received
a donation of a horse trailer in 2020/21. The pursuer had horses at the same farm where
they remained after the relevant date. She had not abandoned the horse trailer. It was in
good condition, seldom used, and undamaged. She needed it to transport the horses for
veterinary treatment. It had had a wheel lock fitted at the time that the defender removed
it. The pursuer and the defender had met on a number of occasions after separation with
a view to trying to resolve their financial affairs. He told her that he had a story that she
might find funny: since she had left no clothes behind for him to cut up and burn, he had
given her horse trailer away to riding for the disabled.
[52]
The defender had retained £25,380 from joint NS&I account xxx7741 by transferring
two sums of money, including the £25,000 already referred to, into accounts in his sole
name (xxx7221) on 28 and 29 August 2020. The relevant date balance was £935, vouched
by 6/8 and 6/128 of process. The same items vouched the balance of the defender's
account xxx7221 as £25,701.41.
[53]
The parties had a joint RBS account xxx3939. A bank statement (6/11) showed the
balance as £8,461.26. The statement disclosed a payment dated 28 August to a NS&I
income bonds account of £7,500, but that had not been debited from the RBS account until
1 September. They also had a joint RBS account xxx5459 with a balance of £7,369 retained by
the defender as shown on a bank statement 6/12.
[54]
The pursuer's evidence about the Land Rover Defender was that it was the defender
who drove the car when it was delivered. She had only driven it once, from Sandford to
Strathaven and back, about 4 weeks after it was delivered. It had a working engine. She
17
never saw any signs of oil leaks in the garage. It had been stripped and rebuilt by 4X4
Fabrication in Shropshire. The defender had designed it and specifically requested that it
be fitted with a Cummins diesel engine. The defender had produced two emails from
Dave Lea, the owner of 4X4 fabrication (7/49). In an email dated 19 December 2022 to the
defender's former solicitors, Mr Lea wrote (sic):
"I am David the director of 4x4 fabrication ltd
Grayham shipped his car into me with a fault on 28th July 2020 it's been with
me since,
The vehicle suffered catastrophic engine failure. Requiring an engine rebuild.
Id value the current car in its condition at £9-12,000 depending on sale.
The value is based on its non running condition and the car is in parts currently as
a non runner.
If you require anything else just ask thanks David."
Mr Lea repeated his view as to valuation in a further email dated 1 January 2023, specifying
that the figures he had supplied applied as at the relevant date. The pursuer said that it was
untrue that the engine had failed. The defender was unhappy with the Cummins engine
and wanted it changed. He arranged to return the car to Mr Lea in September 2020 for a
replacement engine. The pursuer produced a text exchange from 8 and 9 September
2020 (6/120) between the defender and his friend, Donald Wilson, regarding arrangements
to drive the car down to Shropshire and progress during the journey there. She also
produced screenshots of posts bearing to be from the Facebook page of 4x4 Fabrication
showing the car and work being done on the car (6/119). One was dated 10 September.
Another, dated 5 December 2020, showed the car and read, "This beautiful 90 is one of our
favourite builds we love it that much that we are going to build a 110 version". A further
18
post, on 10 December 2020, showed work being done to the car with the text, "It's been a
crazy week transforming Puma Defenders into 330D reliable Work horses".
[55]
The parties had engaged together in building a property at Inverkirkaig. By the time
of the proof the relevant date value of the property was agreed. There was an outstanding
dispute as to the costs to complete the property, with the defender saying that it would
cost £180,000 to complete it. The pursuer gave evidence about this matter. She had
prepared a spreadsheet analysing the cost of the project and had calculated that the cost to
complete it was about £31,400. Tarmacking had never featured in the costings and she had
not understood it to be a condition of planning permission.
[56]
The defender had made a number of loans in his own name in 2022. The pursuer
produced three loan agreements. The borrowers were Altavia Homes Limited, Lion's Den
Developments, and Shaun Pridmore. The transactions followed a pattern similar to other
investments made by the defender and Assynt, in that the loans were secured by charges
granted over heritable property. The combined total of the loans was £4.09m. The defender
had managed to maintain a balance of £1.7m in various NS&I accounts. It was not clear
where he had obtained the money necessary to fund the loans.
[57]
The pursuer said that a balance of £19,500 in her Bank of Scotland account xxx9468
was the remainder of a gift to her from her mother, derived from her late father's estate. Her
father died on 19 January 2010, and her mother gave her the money on 20 December 2013.
She gave the pursuer and her brother £50,000 each. The defender knew about the gift.
The pursuer's mother was moving from a large bungalow to a small flat. She wanted the
pursuer to open a Bank of Scotland account in her own name and went with the pursuer
to the Motherwell branch of the bank. The pursuer used the gift predominantly to buy a
menage for horses. The pursuer was worried that her mother did not have enough money
19
and used £9,000 of it to make up a shortfall when her mother was purchasing property on
a further move from her flat to another bungalow. That move took place in 2017. The
defender had been aware of the construction of the menage and knew where the money had
come from for it. The menage was built before the pursuer's mother moved house in 2017.
[58]
There might have been discussion about the pursuer's mother repaying the £9,000,
but the defender understood that the pursuer had given the money to her mother. The
pursuer and defender, their children, and the pursuer's brother landscaped the garden of
the house, and that the defender had paid for plants. The pursuer said that the defender
had asked for, and received, reimbursement from her mother for the plants. The house
had not been sold at the time of the proof, and the pursuer's mother was in a care home.
[59]
In cross-examination the pursuer confirmed that after the parties separated she
required to ask the permission of the defender to have access to the matrimonial home. In
response to the suggestion that she might have obtained keys from the selling agents, she
explained that the defender had cameras installed at the property, and would have known
if she had accessed the property without his consent. She accepted that the property took
time to clear for sale, and that clearing it would have taken some time. She said that the
defender had tried to renege from the sale, and the bargain was not concluded until the day
before the date of entry. She had not wished to antagonise him. The pursuer did not accept
that the defender had required to put items into storage.
[60]
The pursuer accepted that she had no particular expertise in valuing second-hand
items of moveable property. Much of the furniture had been less than a year old at the
relevant date. She had been able to look at the invoices at the time the parties separated.
The pursuer did not know what the boat was worth. The defender had offered it to her,
20
but she did not want it. She would not mind if it were sold, but had not known that was
what the defender wanted.
[61]
Asked about the £19,500 in her Bank of Scotland, the pursuer said there was no
evidence available from her mother, because her mother had dementia. She had not ordered
up bank statements to show the source of the funds because she had discovered only at a
late stage that the defender was contending that the money was matrimonial property. She
denied that the funds were either money she had saved during the marriage or a loan repaid
by her mother.
[62]
In relation to the cost of completing the work at Inverkirkaig, the pursuer accepted
that costs might have risen as a result of inflation and the increased costs of materials
consequent on factors such as the war in Ukraine.
[63]
The pursuer said she had originally intended to take only a 2 year career break in
order to look after the children. She had enjoyed her time at home with them. Senior
counsel suggested that the defender's application of funds from the sale of Forefront to pay
down the parties' mortgage could be regarded as a donation of capital to her. The pursuer
responded that the defender could only work away from home as he had done because she
was at home with the children.
[64]
The financial security provided by the defender had assisted her to set up her own
business. She had taken a year's sabbatical. She had herself, however, also taken an interim
finance position to bankroll that sabbatical. She did not accept that the defender had
assisted with her business using his professional expertise about due diligence. The pursuer
was herself well-versed in due diligence, and had lectured on the subject. The only advice
he had given her about the business in question was to make sure that the clients kept their
"eyes on the prize". Senior counsel suggested that the pursuer could sell her business when
21
she retired. She responded that as she was the only principal in the business, there would be
a limited market.
[65]
In relation to the loans made by Assynt holdings, the pursuer accepted that the
characteristics of the property being redeveloped would change in the course of the
redevelopment. She observed that Radley House was Grade II listed, so that there would be
some limitations on the alterations that might be made to it. The pursuer was shown 7/115
of process, which read (sic):
"Assynt Holdings Ltd
Date 12/8/20
Purpose of paper
To consider the current global economic environment under Covid-19 and the
potential impact on the carrying value of investment loans outstanding
Macro economic view
The UK government and other governments have publicised that the global covid-19
pandemic will see economies fall deep into recession like no other in history. The
UK government has openly said that the UK will see the deepest recession in post
war history. In addition, the level of public borrowing is at its highest in living
memory and will impact generations to come. Recovery is now expected to be a
deep U shape and not the V that was hoped. Analysts are quoting at least
10 -12 years before the economy returns to pre covid -19 levels.
Micro economic view for the UK
Construction in the UK has all but ceased and despite attempts by the UK
government to stimulate the sector, unemployment is escalating with several
national names announcing thousands of job losses. It is likely that it will take at
least 10 years for the sector to recover. A similar timescale to the banking crisis in
2008. The new build housing sector has some latent inertia where properties that
were nearing completion pre covid-19, are now completing. Bottom up new build
has all but stopped with house constructed from March 20, down by over 80%. The
longer term concern is increasing unemployment and continued recession with low
public confidence in job security to support new mortgage applications. Major house
builders have noted a reduction in house sales of over 80% in the past 3 months and
are laying off trades and construction staff.
22
The retail sector is on its knees with high street names closing as footfall and spend
continues to fall. The prospect of localised lockdown for example Leicester and
Yorkshire continues to exacerbate the issue. Retail in the high street has had to
deploy product sales tactics at a time that they otherwise would not have to, to
generate cash. This has had little success.
About 745,000 businesses have received loans from banks backed by the
government - with more than £3.8bn going to 94,000 companies in the past week
alone. Although the loans come with a 100 per cent government guarantee on the
capital and interest, banks fear a `PR disaster' if they were ever forced to pursue
thousands of family businesses through the courts. Banks are already writing off
these loans from there balance sheets
Assynt Holdings Loan agreements
Loan 1 - (£747k) is in the retail sector. Construction has but stopped and does
not look like continuing anytime soon. The loan is due to be repaid on the
25th September. It is extremely unlikely that the borrower's retail business will
be able to generate enough cash to repay the loan. Equally a forced sale of the
assets is unlikely to cover the loan value It is recommended that under the current
economic climate and the state of the retail industry that the loan value is written
down by 90%
Loan 2 - (£1.5m) is in the luxury housing sector. The loan is not repayable until
January 2022. The borrowers construction business has been using the government
furlough scheme to stay afloat and has since laid off most of its trades and
construction staff. There are no signs of the borrower recruiting and no signs of
the borrower being able to generate enough cash from its business in the required
timescale to repay the loan. A forced sale of the property is unlikely to realise
enough cash to clear the loan. For this reason it is recommended that the loan value
is written down by 80%"
It was said be a paper prepared by the defender and reflecting his views. The pursuer said
she could not comment on various parts of the information in it, as she did not know the
source of the information. In relation to the passage starting, "The banks are already ..." she
said that it had been plagiarised from George Osborne in the Financial Times. She thought
it had appeared in the Financial Times in March 2020. She did not know how the material
bore any relation to the write down the defender had determined. All assets required to be
assessed as to their balance sheet value, and Covid had certainly produced challenges. She
would not have made the same judgments that the defender had. The decision should have
23
been one for the board, and she had been a director. It should have been a decision for the
directors whether to instruct a survey of the sites with a view to calling in the loans. She
accepted that Assynt did not have experience of selling abandoned development sites. It
would be legitimate to allow the developers to see if they could complete the projects, if it
was thought that the loans were recoverable.
[66]
The pursuer accepted that the defender had received repayments in September and
November in relation to his loan to Zebra, and that funds were paid to Mr Beard, but had
no knowledge of any arrangement in relation to Enterprise House. In relation to the loans
made by the defender after separation, when it was put to her that the total of the loans
was £2.048m, she pointed out that he held securities to a value in excess of £4m.
[67]
In re-examination the pursuer explained that she would have been concerned about
the defender learning from CCTV that she had accessed the matrimonial home. She was
wary because of her experience of the defender's behaviour during the marriage. She had
not requested a list of property because she had not wanted to antagonise the defender.
The parties had entered into an interim Minute of Agreement for the sale of the matrimonial
home, but she then received an email saying that the defender was withdrawing consent for
the sale. He then kept pushing back the date of entry. By that point she was communicating
with the defender by email only, to minimise contact. The last email she received from him
berated her for allowing the children to take out student loans.
[68]
Although the defender had been at Inverkirkaig for a period from 14 August 2020, he
had been living in the matrimonial home on 12 August 2020. He did not discuss anything
regarding impairment of the EKO and Radley loans with the pursuer at that time. He did
not talk to her about the state of either the construction industry or the retail sector. She had
researched the content of the 12 August 2020 document and found an identical passage in an
24
article from the Financial Times. The defender did not provide her with draft accounts to
August 2020.
[69]
The writing down of the loans to EKO and Radley had affected the value of her
shareholding in Assynt. She had never seen any document showing that Radley did not
require to repay the loan until all the flats were sold.
Mr Greg Rowand
[70]
Mr Rowand provided two reports, numbers 6/26 and 6/100 of process. He was
instructed to value McCall & Co Professional Services Limited (the value of which was the
subject of agreement by the time of the proof). He had not been instructed to value Assynt,
but to comment on the report of Mr Robb (7/41 of process) regarding Assynt.
[71]
Both he and Mr Robb had access to a Debtors Lead Schedule for Assynt for the
period to 31 August 2020, to photographs later spoken to in evidence as being photographs
of the EKO development, and to a table relating to the EKO and Radley loans.
[72]
Mr Rowand was provided with the 12 August 2020 document. He noted that
Mr Robb did not refer to it as a source in his report. The paper provided no rationale for, or
calculation of a recoverable amount for either loan. He would have expected to see, but had
not seen, the following in support of the write down:
An assessment of the borrower's likely cash flow and ability to repay the loan
including how this differed from the position when the loan was advanced.
An assessment (ideally from an external party such as a surveyor instructed
by the lender) of the likely amount of the loan to be repaid if Assynt enforced
the security over the properties.
25
Supporting explanation for and calculation of the recoverable amounts
of £80,878 and £322,964 with reference to the above assessments of likely
cash flow and amount recoverable from enforcement of the securities.
[73]
He would want to see management accounts and financial projections for the
borrower in order to understand its cash position. Mere assertion from the borrower that
he could repay would not suffice. One would expect there to be discussion between the
borrower and the lender in relation to the borrower's cash flow. That would be preferable
to the lender trying to estimate what the cash flow position might be.
[74]
It would be relevant to consider the terms of the loan agreement. In particular he
would wish to see whether there was a term limiting the amount that could be advanced
relative to the works carried out. One would then know how further loans might be made
or restrictions on what further loans might be made.
[75]
If Mr Rowand had been valuing the shares in Assynt, he would have looked at the
reasonableness of the impairment of the loans, because they were the assets of the business.
He would want to understand what information the director had in order to come to view
that the defender did about the value of the loans. One would always look for independent
information. If the director had something to gain from the impairment that would be even
more important. If the director advanced further loans to the same borrower having written
down the value of existing loans one would want to understand why.
[76]
Mr Rowand noted that RSM UK Tax and Accounting Limited had been engaged on
2 September 2020 to prepare the accounts of Assynt to 31 August 2020 (6/78, CB page 297)
and that the pursuer had been removed as a director on 16 October 2020. If valuing Assynt,
he would wish to know the background to her removal. If it was because she had had a
different view about the value of the loans, that would be relevant to valuation. If accounts
26
for later years had shown a reversal of the impairment then he would wish to have
information about that.
[77]
Assynt's accounts for the year to 31 August 2021 (6/79) contained an accounting
policy in these terms:
"Financial assets, other than those held at fair value through profit and loss,
are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result
of one or more events that occurred after the initial recognition of the financial
asset, the estimated future cash flows have been affected. If an asset is impaired,
the impairment loss is the difference between the carrying amount and the present
value of the estimated cash flows discounted at the asset's original effective interest
rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after
the impairment was recognised, the impairment is reversed. The reversal is such
that the current carrying amount does not exceed what the carrying amount would
have been, had the impairment not previously been recognised. The impairment
reversal is recognised in profit or loss."
There was nothing unusual about that policy. Those accounts disclosed that the director's
loan account had increased by about £300,000 from the previous year. So far as assets were
concerned, the sum shown for debtors falling due within 1 year was £491,629, which was
more than the total for debtors due within both 1 year and 2 years in the preceding year.
The called up share capital had increased as a result of shares being allotted in the course
of the financial year. Mr Rowand could not think of a reason why the repayment of a loan
would not be recorded in the accounts. There might be a reason, but an explanation would
be required. Similarly, it would be difficult to understand why a loan that had been repaid
should be written down.
[78]
In the accounts for 2022 interest for both loans had been written off without taking
account of the earlier impairments. The result was that more had been written off than was
originally due.
27
[79]
Mr Robb's view was that the director's loan was not recoverable at the relevant
date. Mr Rowand and Mr Robb agreed that the recoverability of the loan depended on
the recoverability of the EKO and Radley loans. Even if one accepted that the defender's
writing down of the loans was reasonable, it did not follow that his director's loan was
worth nothing. The impaired amounts were still available to repay it.
[80]
Mr Rowand considered that the defender's shares in Drinks Warehouse had a value
in the range negligible to £50,000. There was insufficient information to say where in that
range it lay. There had been transactions in shares in Drinks Warehouse in January 2020
and June 2022, but Mr Rowand did not know the price at which those had taken place or
the background to them.
[81]
In cross-examination Mr Rowand accepted that creditors of Assynt could use its
accounts as a source of information. The defender was the only creditor of the company.
He accepted also that a company holding loans in the construction industry in August 2020
would consider whether to write those loans down. It would have been reasonable to assess
the recoverability of the loan. Senior counsel referred Mr Rowand to an extract from the
financial reporting standard in force in 2022, which was said to be identical to that in force
in 2020, and in particular to paragraph 2.9 relating to the need for prudence to avoid the
overstatement of assets. The passage indicated that the exercise of prudence did not permit
bias either as to deliberate understatement or overstatement, a proposition which
Mr Rowand accepted.
[82]
Mr Rowand reiterated that he had not seen any calculations to support how the
defender had arrived at the 80 and 90% write-downs. Although the loans were not
repayable in August 2020 he would have expected the borrower to respond to inquiries
from the lender about cash flow, with a view to maintaining the working business
28
relationship. He acknowledged that there would have been uncertainty in August 2020,
but said that people would at that time have been preparing projections. It would have
been better to have cash flow figures prepared by a borrower in a context of uncertainty
than to have no information at all. All projections were attended with some uncertainty,
although in the context of the pandemic the degree of uncertainty would have been more
significant.
[83]
He accepted that if the loans had been called up that would have been at a stage
when the developments were incomplete, and Assynt would have had to sell the sites
or complete the projects. If one had a view from a surveyor about the value of the site on
calling up of the security, and then wrote the loan down to a lower value, one might be in
danger of not reflecting a true and fair view of the value of the asset. Mr Rowand accepted
also that directors might legitimately have regard to information from a variety of sources
when considering impairment of an asset. In general terms he did not find the contents of
the 12 August document surprising, but he could not recall whether some of the specific
contentions in it were commonly being aired in August 2020. By August 2020 matters had
evolved since the start of the pandemic. Furlough was well-established, and the country
may have been coming back out of lockdown. There was uncertainty, and there were job
losses in some sectors.
[84]
Senior counsel referred Mr Rowand to photographs of the EKO developments, and
emails from individuals connected with the EKO and Radley sites setting out issues that
they said had been encountered in the projects. Those emails bore to have been sent on
13 July 2022 and 12 August 2022. The latter related that lockdown rules had started to lift
on 10 May 2020 and that work from home measures were reimplemented on 22 September
29
2020. Mr Rowand accepted that a director in August 2020 would take into account
information from a borrower about where the project stood.
[85]
In relation to Drinks Warehouse, Mr Rowand took no exception to the background
as narrated by Mr Robb in paragraphs 2.1-2.5 of his report. He thought it was correct that
the company had borrowed £2m; that some of that money had been used for acquisitions
before the pandemic and that there had been some further borrowing, perhaps in the form
of a bounce back loan. Mr Rowand accepted that an earnings basis of valuation was
appropriate. Where he disagreed with Mr Robb was in ascribing some hope value to the
defender's shares. The hope was one that there would be a purchaser who ignored the
economic situation and both the earnings and net asset values of the company, but attribute
value to the shares. Hope value was something normally associated with start-up and early
stage companies. They were sometimes purchased for a value even without a trading
record, because the buyer assessed that the business would develop and be worth much
more in the future.
Mr Alan Bathgate
[86]
Mr Bathgate is 68 years of age and trades as T & T Technical Services. He is a
consulting automotive engineer and accident claims assessor. He provided opinions in
relation to the values of two motor vehicles, a Land Rover Defender and an Audi. Most of
his work related to the valuation for insurance purposes of vehicles involved in road traffic
accidents. He estimated that he had examined more than 60,000 vehicles.
[87]
The Land Rover had a D registration place. Mr Bathgate had not been able to
examine the Land Rover, but had been provided with pictures of it taken during the
rebuilding process and documents detailing the costs incurred in refurbishing the car.
30
They were breakdowns of cost provided by 4x4 Fabrication, of Whitchurch in Shropshire,
to the defender (numbers 6/133, 6/134 and 6/135 of process). The documents bore dates
in 2018 and 2020. Number 6/135 was a complete version of an incomplete document
produced as 6/133. Mr Bathgate's approach to valuation had been to add up the cost of
the work detailed and add that to the value of the vehicle before work was done to it. He
assessed the value of the vehicle before refurbishment at £5,000 on the assumption it had
an MOT and was roadworthy. The resulting total was £68,485, and Mr Bathgate valued
the vehicle as worth between £68,500 and £70,000. He said that was a legitimate approach
to valuation because there were no guides as to the market value of similar vehicles. The
car had been very heavily modified at the request of its owner, which had enhanced its
specification and value. The car was therefore worth whatever the owner was prepared to
pay for it. The worth to the owner was what the owner had been prepared to spend on it.
Given the unique specification there would have been no depreciation since 2020.
[88]
Land Rover Defenders had a strong following. Whether they were standard or
modified, once they reached a certain age many people would wish to retain them, but
there were as many who would wish to modify them whether to a limited extent or more
extensively. Mr Bathgate described the extent of modification of this car as rare. It was
not unusual for modifications to be made, but the defender had not only fitted a large
capacity engine but had undertaken a full refurbishment of the body and chassis. Specialist
magazines carried listings for modified vehicles. Depending on the specification the asking
prices were in the range £50,000 to £100,000. That was not necessarily an indication of the
transaction price.
[89]
Mr Bathgate valued the Audi in the range £19,000 to £19,500. It was an Allroad Sport
TDi Quattro with a 66 registration. He had been told the recorded mileage was 75,000 miles.
31
Glass's Guide for August 2020 quoted the value as £20,550 in retail condition and £17,580 in
trade condition. He had taken a figure between those two figures. He had not seen the
vehicle.
[90]
Mr Bathgate accepted that it was better to see a vehicle when valuing it. In
cross-examination he said that the information about refurbishment of the Land Rover was
detailed and provided a clear picture of the work done. He had not relied on MOT records
for the vehicle. Its mileage was not relevant given the extent to which it had been renewed.
It would be necessary to know the mileage of a vehicle in standard condition, but this was
not a standard vehicle and its components had been changed. He accepted that in assessing
what the vehicle was worth to its owner, he was describing the value to a special purchaser
with a particular interest, rather than the market value of the vehicle. He had been unable
in specialist publications to find a comparator vehicle modified to the same extent as the car
in question. He had assumed that the refurbishment had been carried out competently and
that the vehicle was capable of being used on the road.
[91]
Number 7/16 of process was an invoice showing that the Audi had been traded in (in
the context of the purchase of another vehicle) for £9,500 on 6 October 2021. The document
showed a mileage of 75,000. Mr Bathgate observed that that would indicate that the mileage
at the relevant date, some 14 months earlier, was lower than he had assumed. He
acknowledged that the value of the vehicle at the relevant date would have depended on
its condition. He did not know the terms of the deal in which the trade-in price had been
negotiated.
32
Kristine Dickson
[92]
Ms Dickson was a colleague of the pursuer's at Ernst and Young. They started
working in the same team in 1995. Both entered the pathway to partnership programme
in 1999. Ms Dickson opted out of it after a 3 day assessment course, because she had young
children, and the pursuer opted out shortly afterwards. Both continued as directors in
the firm. Ms Dickson was working part-time. While the pursuer took a career break,
Ms Dickson continued to work with Ernst and Young and achieved the position of
non-equity partner. She could not say whether the pursuer would have done so if she
had stayed, as there were a number of variables. As a part-time director she earned the
pro rata equivalent of a full-time salary of £70,000. When she returned to full-time work
in 2014 she was promoted to executive director and earned £125,000. At the relevant date
she was earning £155,000, and by 2022, as a non-equity partner, £163,000. In July 2023 that
figure increased by £7,000. She also benefited from membership of a pension scheme.
Anne Wilson
[93]
Ms Wilson's evidence was directed only to the grounds for divorce and is
summarised elsewhere in this opinion.
The defender's case
The defender
[94]
The defender is a chartered accountant. He is 58 years of age.
[95]
He was very shocked when pursuer left. He went to his parents' house. His father
expressed the view to him that the pursuer had been planning her departure for some time.
The defender said that he was not thinking straight and that it was in that context that he
33
moved funds from joint accounts in the names of the parties to accounts in his sole name.
He was panicking and thinking that he needed access to money. The defender was
concerned that another man might be involved. He was imagining all the things that might
have happened. With all of that in mind he decided to change the locks and placed security
cameras around the house. He believed that someone other than the pursuer had been
aware of her plans to leave because police arrived to remove guns that he held (with the
appropriate certificate) from the house.
[96]
The pursuer had not liked the pressures of working for Ernst and Young in the audit
department. He would have been happy to step back from his career if she wanted to be a
partner there while raising a family. The pursuer did not want to employ a nanny. She
left Ernst and Young to work at Strathclyde University with a view to starting a family.
Part-time working was not an option at Strathclyde University. The pursuer believed that
the business risk department of Ernst and Young would be more flexible around part-time
working and she moved to work there in 1997. She was against returning to full-time work
and employing a nanny and scorned her peers, including Ms Dickson, for doing so.
[97]
It was difficult for the defender to find a job after leaving a post in 2008. At that time
the pursuer was working as a part-time lecturer. The parties changed their mortgage to an
interest only product and reduced their outgoings. The pursuer did not want a full-time job.
The defender found work in the south east of England. He was very upset and concerned
about the impact that would have on his family. He found working away from home
emotionally challenging, but the pursuer encouraged him to carry on. After a short
consultancy period it became clear that his "only option for employment" was to become
the CEO of Forefront, and he commuted to Essex and London each week for 5 years. The
pursuer was not keen to relocate to Essex.
34
[98]
The proceeds of sale from Forefront were used to clear the mortgage on the
matrimonial home and £400,000 was invested in a pension for the pursuer. The parties'
financial adviser recommended that for tax and pension reasons the money should be put
in the pursuer's name.
[99]
The defender supported the pursuer financially while she was setting up her own
business in 2015. The pursuer had no experience in advising through a sale transaction or
doing due diligence for a sale transaction. With his private equity experience he was able
significantly to assist in the background, allowing her to gain credibility. In his oral
evidence he indicated that the pursuer had needed no assistance from him in relation to
carrying out an "audit-type" role. They were accountants who had different skill sets.
They had regular discussions and conversations. The business had been set up to allow the
pursuer to have a lifestyle business, and with a view to her reducing her hours of work at
some point so that the parties could spend more time together. He could not understand
why the pursuer had not allocated any shares to him, as they did everything together.
[100]
From 2016 the defender worked for Energetics, later known as Last Mile. The
business was owned by a bank, Macquarie, who were an extremely aggressive and
demanding equity capital investor. The role was stressful and the pursuer did not support
the defender either emotionally or "as an accountant".
[101]
In 2018 defender received £4.75m for his shares in Energetics, on which he paid
capital gains tax of £387,194. It was a condition of the deal that he reinvest £750,000 in the
new entity and sign a shareholder investment agreement tied to his employment contract
for a further 5 years. The shares he had to roll over into the new entity (Last Mile) were
worth less than their original value for 2 years until the future sales projected in the business
plan had been achieved. He was not entitled to realise the value of his B, C or preference
35
shares until October 2023, his death, or on leaving his employment with the company. He
was disappointed that the pursuer did not appear pleased or excited when he told her the
outcome of the transaction. She was unhappy that he had not kept her informed as to what
was happening.
[102]
After the sale of Energetics the defender started discussions with Bradley Beard,
formerly of Forefront about making loans to the construction industry. Mr Beard
introduced him to Patrick Vanderhyde of Flagstone Capital, who had brokered loans for
Mr Beard. The defender went on to make loans personally. He advanced £500,000, as did
Mr Beard, to Zebra Homes Limited ("Zebra") for a development called Gable Farm. It was
due to be repaid in June 2020.
[103]
On 5 March 2020 the defender met Mr Beard and Mr Vanderhyde in Glasgow "before
[the] COVID-19 pandemic hit". They discussed the loan to Zebra. At the meeting the
defender also learned that Mr Beard had made a loan of money and in that connection held
a security over Enterprise House. The loan was referred to in the evidence as the Enterprise
House loan, or the Enterprise House investment. The defender agreed that he would lend
money. The defender would provide a £500,000 loan which would be used to "reduce the
amount of [Mr Beard's] loan over Enterprise House". The defender's evidence was that at
that point on 5 March 2020 he had an obligation and had committed himself to "pay the sum
of £500,000 as a loan to Enterprise House in June 2020". He said he had discussed this with
the pursuer. The money to be repaid by Zebra Homes was earmarked for this purpose.
Zebra did not repay in June, but did so in September. The defender instructed the solicitors
who received the funds from Zebra to pay £500,000 to Mr Beard. The defender produced
emails dated 3 September 2020 including one from Ms Amelia Hayes of Jeffries, solicitors,
36
asking him to confirm whether funds from the sale of a plot or plots at Gable Farm should
be released directly to Mr Beard.
[104]
It later proved difficult for the defender to be provided with security for the money
he had advanced. Mr Beard subsequently made a loan to St Cross Homes (Winchester)
Limited. This had nothing to do with the defender. Mr Beard decided to name the defender
as a creditor on the charge which he obtained for the loan to St Cross Homes. He did that
to provide the defender with security in lieu of the security that could not be provided by
Enterprise House in case the defender lost money on the loan for Enterprise House. He did
not pay any money directly or indirectly to St Cross Homes.
[105]
The defender produced a letter (7/13) dated 1 June 2020 from Mr Vanderhyde to him,
in the following terms:
"Enterprise House Investment
Dear Graham,
Following my meeting with yourself and Bradley in Glasgow on the 5th March 2020
then our various ongoing communication to discuss the current investments and
future opportunities. Please see below the details of the agreed £500,00 (sic)
investment by yourself in the current loan held by Bradley Beard.
Address of security: Enterprise House, Isambard Brunel Road, Portsmouth,
Hampshire PO1 2RX. (Please note the security is currently held in the sole
name of Bradley Beard, this will be updated in due course as agreed).
Loan Amount: £500,000
Interest Rate: 8% per annum (Interest due on the anniversary of the loan
6th January unless the lender agrees to roll the interest up)
Loan to be funded by the redemption of your half of the Gable Farm Loan
and send directly to Bradley Beard via the borrower's solicitor.
If you have any queries relating to any of the above do not hesitate to contact me. If
in agreement please sign where indicated to confirm you are happy to proceed I will
get Bradley to do the same the (sic) send copies to you both for your records."
Signatures appear above the typed names of the defender and Mr Beard on the copy
document produced.
37
[106]
In 2019 the defender set up Assynt as a vehicle for providing loans to construction
companies. He held 75% A shares, the pursuer held 7% B shares and each of the children
held 6% in C shares. The C shares carried no voting rights.
[107]
Assynt was committed to lending EKO £1,059,000 of which £747,740 had been
advanced at the relevant date. A further instalment of £73,119 was advanced on
18 September 2020. The defender said that the pursuer had removed funds that were
needed for the work at Inverkirkaig. He had to apply his own funds to that work and was
left without enough money to fund Assynt to honour its lending commitments. Mr Beard
had stepped in to provide £326,000 because otherwise Assynt would have had to default on
its obligation to lend money to EKO. He did so on the basis that he would be paid before
Assynt.
[108]
The loan to Radley was not due to be repaid until 22 January 2022, with interest
at 9%, and the loan was to be repaid on the sale of all of the apartments. In examination
in chief the defender accepted that the loan agreement did not contain any provision that
the loan was to be repaid only on the sale of all the apartments. He had had a conversation
with Mr Vanderhyde shortly after the loan was put in place. Mr Vanderhyde told him that
Radley had asked if the defender would be "OK" if the loan was redeemed on the sale of
all the apartments. The defender was not concerned by that. It meant that Assynt would
receive more interest. The rate of interest specified in the agreement was 9% per year. The
date of repayment specified in the agreement was not a hard and fast date. In this type of
loan there was every chance of delay in repayment, but the loan would not be repaid before
the specified date. If the final flat was never sold and Radley were taking advantage of the
situation he would at that point call in the loan. When the defender was giving evidence
in chief, he said that Assynt had received only one interest payment in respect of the loan.
38
[109]
Last Mile, for whom the defender was working at the relevant date, installed and
operated utility infrastructure in the commercial and housing property sectors. It was
heavily exposed to the downturn in those sectors caused by the pandemic. Last Mile's
directors received market updates from a number of sources, and updates from the financial
media. There was a consensus that the United Kingdom would suffer a deep recession.
Financial media predicted an 80% drop in property transactions. It was in the light of
pessimistic predictions from those providing market updates, and issues related to the two
particular redevelopment projects that the defender determined to write down the value of
the loans to the extent that he did. The EKO development had a number of problems in
relation to build quality, compliance with building regulations and shortages of labour
and materials associated with the pandemic. The Radley development was affected by
the finding of human remains by archaeologists, and similar difficulties associated with the
pandemic. Flatted property, which both developments involved, was not popular during
the pandemic. The defender produced a report from the Guardian, dated 26 August 2020
indicating that larger rural properties were more popular than apartments at that time.
[110]
The defender's source of information about the progress of the developments all
came from Mr Vanderhyde. When the country went into lockdown he immediately called
Mr Vanderhyde. After that, they spoke two or three times every 2 weeks. Mr Vanderhyde
was based in Essex. The EKO development was in Essex, and the Radley Development in
Hampshire. The defender considered he had accurate information from Mr Vanderhyde,
and relied on it. He never visited the sites himself.
[111]
He had not discussed the impairment of the loans with the pursuer at the time
when he prepared the 12 August document. Both of them were at the matrimonial home
but he had gone to Inverkirkaig 2 days later. The conversation never happened because the
39
pursuer left the defender. It was a conversation they would have had if they had come to
spend time together at Inverkirkaig after the pursuer's operation as originally planned.
Asked by his own senior counsel about the pursuer's contention that he had plagiarised
part of the content of the 12 August document, he responded that at Last Mile he would
have seen many reports, including financial commentary in the Financial Times. There
were many documents that had led him to the conclusions he had reached.
[112]
The defender advanced more money to EKO in September 2020 because otherwise
Assynt would have been in default. He also advanced the funds, and did so also in relation
to the request from Radley for £220,000, because he had the hope that doing so, and
supporting the projects financially, would enhance the prospects that the existing loans
would be repaid. It would have been commercial suicide to do otherwise, as he was not
equipped to take over and deal with a partially completed site.
[113]
EKO did not sell the development until June 2023. Assynt advanced a
further £220,000 to Radley, but Radley had a change of heart and returned the money almost
immediately. The defender was having trouble with Assynt's Bank of Scotland business
account and could not access it. He attributed that to the circumstance that the bank were
using the address of McCall & Co for correspondence with Assynt, and the pursuer had not
forwarded mail. As he could not access the account, the defender asked for the money to be
sent to an account in the joint names of himself and a Ms Williams.
[114]
The defender accepted in examination in chief that the 2021 accounts reflected the
payment of £220,000 to Radley, but wrongly omitted to show that it had been repaid. He
described it as a shabby error on his part. It would have to be corrected in the next accounting
period. He accepted also that interest had, wrongly, been written down by 100%, without
40
recognising the existing write-down. Those errors had no bearing on the truth or accuracy
of the 2020 accounts.
[115]
The defender had been unable to obtain evidence as to what a willing buyer might
have paid for an assignation of his director's loan at the relevant date. The director's loan
and the underlying loans to EKO and Radley were unrealisable at the relevant date.
[116]
The defender said that he had considered it necessary to terminate the pursuer's
directorship because they had just separated. He found the idea of speaking to her difficult.
The marriage was finished, and that was not his doing. It did not seem possible to him to
have a board meeting to discuss matters. He spoke to RMS accountants and they
recommended that he remove her as a director. He emailed and asked her to resign but
there was no response so he had to proceed formally. The pursuer was communicating with
him at the time but it was clear that from her perspective the marriage was over. The
pursuer did not make representations that she should be allowed to remain as a director, so
it appeared to him that she did not want to remain. He would have expressed his concerns
had she made representations, but he would have considered them.
[117]
It was easier to extend a first accounting period than to do so in later years. He
had extended the accounting period for a variety of reasons that had nothing to do with
the parties' separation. The country had gone through a major pandemic. RMS required
him to produce a view on the value of Assynt's assets. It had not been a ploy to evade
scrutiny of the accounts by the pursuer when she was still a director. The alteration of the
share structure had been to capitalise in order to meet accountancy fees. There was no point
adding to a director's loan that was already unlikely to be repaid. It was not to disable the
pursuer and the children from insisting on an audit.
41
[118]
Drinks Warehouse was profitable in 2019 when the defender invested in it. It was
an equity investment made with Percipient Capital. The pandemic brought the hospitality
industry to its knees. A July 2023 report from Percipient Capital suggested that any sale of
the business would be 3 to 4 years in the future. The business had been restructured and
was showing signs of improvement.
[119]
The parties started constructing the property at Inverkirkaig in 2019. On 4 August
the pursuer asked the defender to transfer funds of £174,529, which had been allocated to
the project, to her. He did so. After the parties separated the pursuer told him that the
children wished him to complete the project, and he expended money trying to do that, until
his then solicitors advised him to stop. If he had stopped all work the state of construction
was such that the structure would not have survived the winter. He had spent £272,162
since the relevant date. Further expenditure would be needed to complete the project.
[120]
The pursuer's mother had moved to a flat following the death of her husband, but
then wished to purchase a bungalow near her former family home. The parties provided
funds of between £20,000 and £25,000 to allow her to do so. The pursuer told the defender
that she had discussed matters with her brother and had agreed that on the death of her
mother, or sale of the property, the parties would receive first repayment of the sum they
had loaned before any equity was split between the pursuer and her brother. The pursuer's
mother was in a care home and the defender did not know whether the house had been sold
or remained as part of her estate.
[121]
The defender had been very distressed to find that the pursuer had a bank account
with £19,500 in it about which he knew nothing. He had no idea where the funds came
from. It might be money that the pursuer had managed to put away with his knowing
anything about it, or might be repayment of the loan made to her mother. The pursuer
42
never told him she had received any money deriving from her father's estate. During the
marriage the parties had always tried to save. He could not understand why they were not
saving more when he was at Last Mile, earning between £150,000 and £182,000 each year.
The pursuer always provided detailed accounts of their expenditure and he never
questioned it. He never considered the possibility that she held a separate bank account.
He had not required the pursuer to justify her spending, but they had sat down regularly to
reconcile their finances, and he would ask her what they were spending and what they had
saved.
[122]
In oral evidence he said he was aware of money left by the pursuer's father for her
when he died. It was used to fund stables, not a menage.
[123]
The parties' boat was purchased for £13,000 and was insured on a new for old basis
for £25,000. The defender thought it was worth £10,000 at the relevant date.
[124]
The defender disposed of the pursuer's horse box because she clearly had no further
use for it. It was unlocked outside the farm where she left it. He donated it to Riding for
the Disabled. The trailer was damaged and several years old and the defender thought its
relevant date value was in the range £1,000 to £1,500.
[125]
Clearing the matrimonial home for sale had been distressing. He placed a number
of items of furniture in storage, as well as items of sentimental value, a dinner set, some
artworks, and two televisions. He paid for storage until May 2022. He had not been able to
sell the second hand furniture. He retained a bed, a storage unit, part of a sofa, a television
set, his own belongings and his cycling equipment. He had left some items of furniture,
wedding china, crystal, some artworks and white goods in the matrimonial home. The
pursuer could have collected those items at any time. Their value was similar to that of the
items he had retained.
43
[126]
The pursuer had owned three Land Rover Defenders over the years. The defender
decided to commission 4x4 Fabrication to rebuild a Defender as a special gift for her. The
cost of refurbishing it was about £55,000. He thought it was a "forever" car for the pursuer.
When it arrived she was indifferent to it. The Cummins engine fitted to it made it difficult
to drive, and leaked oil, which he was told was normal. The defender agreed to drive the
car to Shropshire so a different engine could be fitted. When the engine was removed he
was told that it had seriously malfunctioned.
[127]
So far as the Audi was concerned, the only difference between its condition at the
relevant date and when it was sold was that a warning light had come on for the suspension,
and the AdBlue sensor was not working properly.
[128]
Although the defender had placed a deposit of £220,000 on a property, it was not
the sum repaid on behalf of Radley, but was paid from NS&I account xxx2554.
[129]
On 10 May 2022 the chairman of the board of Last Mile told the defender that his
employment was being terminated because he was not performing effectively as a CEO.
The defender said this happened because he suffered from depression as a result of the
pursuer's "deceitful actions" in ending their relationship. He lost the ability to enhance his
share value significantly. He had to wait until 23 October 2023 for his shares to vest. Had
that happened, the shares would have been worth £6m. He lost that because he lost his job.
He was treated as a good leaver and received a payment of £258,960 for the loss of his
employment, and £3,274,100 for his shares. His capital gains tax liability was £636,480.
The defender said he had been unable to obtain work since then, but received a nominal
payment for acting as a non-executive officer for the Board of Scottish Brain Science.
[130]
The defender produced a spreadsheet detailing his resources. It showed that he had
made three loans totalling £2,048,196. The funds for those loans came from the proceeds of
44
his shares in Last Mile. He had security for the loans up to £3.11m, but he had not advanced
that much. He did not know and was not interested in whether other lenders had securities
over the same subjects.
[131]
In cross-examination the defender said that the first thing he did when he discovered
the pursuer had left was to check the NS&I accounts, including those in the pursuer's sole
name, to which he had access. He could not see the sum he had transferred to her. He
accepted that at the time the parties separated he had access to more than £500,000 in a
personal NS&I account xxx2554. That was after having transferred £119,529 to the pursuer
on 6 August 2020 from that account. On 29 August 2020 he transferred £527,526 from the
same account to a new Income Bonds account. He had no idea why he had done that. He
accepted also that he had opened a new Bank of Scotland account on 18 September 2020.
[132]
He had changed the locks on the matrimonial home and installed two cameras with
a motion sensor so that images would be sent to his mobile phone. He did not give the
pursuer a key, but told her he had changed the locks. He later gave keys to an agent. He
did not recall telling the pursuer that she could have a key if she stopped being silly and
came home. He did offer her access, on the basis that she would have to ask him for it.
He accepted that she owned the property jointly with him.
[133]
When he removed the horse trailer, he had knocked at the door of the farm but there
had been no answer. He had made a comment to the pursuer that she had not left him with
any clothes that he could throw away or burn, but he had not made that comment in the
context of a conversation about the horse trailer. He did not obtain a gift aid certificate from
the charity to which he donated the trailer.
[134]
Senior counsel suggested to the defender that he had told 4x4 Fabrication to say that
they had had the Land Rover Defender since July 2020, which he denied. The defender was
45
shown the email from Mr Lea (7/49) which related that he had "shipped his car into [Mr Lea]
with a fault on 28th July 2020". The defender said that that was absolute nonsense. He had
no idea why Mr Lea would say that he received the car in July 2020. He could not explain
why his previous solicitors had lodged the email on his behalf as a production, or why the
email was incorporated by reference to the production number at paragraph 35 of the
affidavit that he had sworn. He had been relying on the valuation provided by Mr Lea, and
had not paid attention to the reference in the email to July 2020. There was no intention to
have Mr Lea lie on his behalf. The defender accepted that he had been able to drive the car
235 miles on 9 September 2020. He had been paying £108 a month to store the car in
Shropshire since 2020, although it was worth only £9,000. It had been intended for the
pursuer and he still had no issue with her having it. The engine had made the car hard to
drive, but he had not had it replaced. He did not know whether the Cummins engine was
presently in or out of the car.
[135]
The defender accepted that the funds provided to Assynt to make loans were
matrimonial property. When it was put to him that on the Saturday following separation
he instructed RSM to prepare accounts, he did not answer the question directly. He said
that the first instruction to them was not on 2 September 2020; they had been involved with
the company since its inception, and he had been talking to them continuously since then.
RSM had advised him to allocate a share to his father. He needed his father to assist him
with the company, as he was removing the pursuer as a director. He did not know why
Ross Stupart, of RSM, was on his witness list, or why he had not been called as a witness.
[136]
He could not envisage the pursuer remaining as a director. He had lost all trust in
her because she had ended the marriage and deceitfully persuaded him to transfer funds to
her shortly before by saying that she needed funds because horses required to be moved so
46
that they could be schooled and ridden. The defender had not held the SGM at his parents'
house with a view to excluding the pursuer, but for the convenience of his father, who could
hardly drive any more. His parents were very welcoming to the pursuer, and had never
said a bad word about her, other than on 28 August 2020 when his father said, "We saw it
coming, Anne has been planning this for a long time son".
[137]
The defender reiterated his explanation for increasing the share capital on
18 September 2020 rather than increasing the director's loan account. He had not told his
fellow directors that he was going to do that, because he did not have any obligation to tell
them. Similarly, there was no obligation on him to tell the pursuer that he planned to extend
the accounting period. He had written to Assynt on 7 October indicating he would not seek
repayment of his director's loan within 12 months. Again, he had not told any of the other
directors about that because he was not required to. On 29 October he had signed the
accounts in which the EKO and Radley loans were written down, but he had made the
decision to write them down before that. He said there was no rush to sign off the accounts.
[138]
The defender could not remember whether he had served the notice of SGM and
resolution to remove the pursuer as director on the same day that he had sent flowers to her
office seeking to persuade her to go to Inverkirkaig and talk matters through. He was trying
to save his marriage, but also to run a business.
[139]
Senior counsel suggested that the defender had not disclosed his Aviva pension
when served with a specification of documents. He said he had not realised he had it.
It was only after proceedings were raised that he realised that his additional voluntary
contributions had been invested with Aviva.
[140]
When senior counsel asked the defender about the former matrimonial home and
its contents he repeatedly referred to have been made homeless. He said that he should not
47
have agreed to sign the Minute of Agreement passed to him by the pursuer. He accepted
that he had rented another home, but said it had been difficult to do so because he had two
dogs. He considered that the pursuer's valuation of the house contents was excessive. He
had tried unsuccessfully to sell some of it. He did not take the lawnmower, but left it in the
boat shed. He took the boat which was now stored in the boat shed at Inverkirkaig.
[141]
The defender said he had not been party to any conversation about a gift to the
pursuer from equity released by the sale of her mother's family home at the time that her
mother moved to a flat. He accepted that a menage was built at the matrimonial home, and
that a plaque was erected at it, reading "G and G arena". Senior counsel suggested to him
that "G and G" stood for gran and grandad. He responded that he thought that it was the
stables that had been built with money from the pursuer's father's estate. The defender
could not say whether the sum supplied to the pursuer's mother to help her move from the
flat to a bungalow was £9,500. He thought it was more than that. It had not come out of
his bank account as far as he could recall. He could not say whether it had come from an
account in the joint names of the parties.
[142]
The Audi had been traded in in Wigan. The defender often located good value cars
in England, using the AutoTrader website. When the purchasing business fixed a price for
the Audi, they did so using photographs, and without seeing the car. He could not believe
that the pursuer would have allowed him to spend £68,000 plus VAT on refurbishing the
Land Rover. He was sure that the total had not been as high as that. The Land Rover was
not currently taxed, and he had not instructed Mr Lea to put it through its MOT.
[143]
The defender received payment of the principal sum and interest in relation to
the Zebra Loan in September and November 2020. He denied telling the pursuer in
48
November 2020 that he had not received payment and that the loan might fail. The whole
capital proceeds were paid to Mr Beard.
[144]
The defender was shown an email from his former solicitor to the pursuer's solicitor
dated 15 February 2023, saying the following:
"The position is as pleaded - Graham made a loan to Zebra Homes Limited
of £500,000 due to be repaid by June 2020 for which there was a Loan Agreement
put in place. Graham does not have that loan Agreement because it was removed
along with other papers in a blue folder around the time your client vacated the
property.
In March 2020 Graham agreed with Bradley Beard to take part in a loan arrangement
between Mr Beard and Enterprise Homes Limited [Graham does not know the
company number] with Graham's commitment to lend £500,000, said monies to be
repaid in June 2020.
In June 2020, Graham did not have the money repaid to him by Zebra Homes and
so did not have the money to pay Enterprise Homes Limited.
Mr Beard agreed with Graham that Mr Beard would provide the whole loan to
Enterprise Homes Limited and he did so. Mr Beard acquired the whole entitlement
to repayment and securities provided to him by Enterprise for the whole sum.
Graham's loan of £500,000 was with Bradley and therefore unsecured.
At relevant date, Graham is thus due £500,000 by Zebra Homes Limited and has
contracted that immediately on its receipt he will pay £500,000 to Mr Beard.
Crucially at relevant date, the net position is zero.
Separately Mr Beard invested £500,000 in St Cross Homes in December 2020. Neither
Graham nor Assynt Holdings transferred any monies either directly or indirectly to
St Cross Homes.
Mr Beard, however, obtained with Graham's cooperation a security in favour of
Graham for the sum of £250,000. Graham had not made the link in this respect until
receipt of the Companies House documentation you forwarded to me in your email,
and his subsequent conversation with Patrick Vanderhyde in which Mr Vanderhyde
recalled that the reason Mr Beard obtained this security was a means of giving
Graham security on the Enterprise loan deal albeit only for one half of his
investment.
St Cross is not featured in any of Grahams loan correspondence or with Assynt
Holdings loan correspondence other than knowing Radley House Investments
Ltd [11412873] bought the property (St Michael's House) from St Cross."
49
The defender did not know why there was a reference to Enterprise Homes Limited.
Enterprise House was not a site under development. Mr Beard held a security over the
property.
[145]
The defender accepted that he was a creditor in relation to the loan agreement dated
1 December 2020 among himself, Mr Beard and St Cross Homes, notwithstanding the
email sent by his solicitor stating that St Cross did not feature on the defender's "loan
correspondence". He said that there was a difficulty in "getting him on" to the security
over Enterprise House. He had not "joined the dots" in relation to a conversation to the
effect that Mr Beard was making a further investment, and that the defender would be put
on the security in relation to that in lieu of his "security over Enterprise House". The
defender had not provided funds to St Cross Homes. The defender accepted also that he
had advanced £500,000 in relation to Enterprise House in the expectation that that sum
would be repaid. There was no contract between himself and Mr Beard. He had known
Mr Beard since 2009 and he had become a trusted friend and partner. He did not have any
other agreements with Mr Beard about loans that had not been reduced to writing.
[146]
Mr Beard was unavailable to give evidence, according to the defender. He had had
a heart attack after the defender left Forefront in 2014. The defender had not seen him for
a while. Mr Beard's health was not great and he suffered dreadfully from stress. He had
made it clear that he would provide information in relation to the action for divorce, but
under no circumstances was he going to put himself through being questioned in court.
Senior counsel referred the defender to a certificate signed by Mr Beard and dated
12 September 2023 in which he certified he had no documents falling within a specification
that had been served on him. The defender reiterated that Mr Beard had said he would help
with "whatever process was required". He disputed the suggestion put by senior counsel
50
that Mr Beard was absent because he had not been prepared to give untruthful evidence to
support the defender's assertions about the investments in which they had been involved
together.
[147]
The defender said that when he met Mr Beard in Glasgow on 5 March 2020 he
was unconcerned about Covid and that there was no indication that there would be any
lockdown. He was not taking Covid too seriously at that time.
[148]
Mr Beard had not been involved in the loans to EKO or Radley, but had advanced
funds on Assynt's behalf because Assynt was in danger of being in default. There was no
written agreement in relation to Mr Beard's involvement in that respect. Regarding the
repayment of the loan by EKO, the defender knew that the money had to be returned to
Mr Beard. The funds had to be paid in the first instance to Assynt, as the legal mortgage
holder. Mr Beard however had told the defender to keep the money, and that they were
"square" so far as the Enterprise House matter was concerned.
[149]
The defender had never inquired as to who the borrower was in relation to
Enterprise House. There had been no repayment date in relation to his investment.
Mr Beard had invested £2m, which was earning income. The defender had wanted the
opportunity to have his money earning income. When he wanted to get the money back
he would give notice and say he would like to have the funds back. The defender was
shown 6/47 and 6/48, which showed that the registered proprietor of Enterprise House was
Axis Associates Limited (Axis), and the existence of a charge in favour of Mr Beard dated
6 January 2017. The defender had not received a quarter of the annual interest on the loan
by Mr Beard in exchange for his investment of £500,000. He had been willing to take interest
annually on the basis that he would be put on the mortgage. When he was put on the
agreement with St Cross Homes, St Cross repaid Mr Beard, and the defender then obtained
51
funds from that. He had been repaid his capital investment of £500,000 but could not give
an exact figure in relation to interest. The money was repaid in 2022 or maybe in 2023.
[150]
Shown the loan agreement between Axis and Mr Beard, the defender accepted that
the loan was due to be repaid on 6 January 2019 and was therefore 14 months overdue when
he agreed to contribute £500,000. That did not bother him, as "you have got security over an
asset". Mr Beard had kept the loan running after the development was completed. He did
not know if Mr Beard had called in his loan to Axis, or whether it was ever repaid. He was
unaware that Axis had been struck off the register in December 2023.
[151]
Number 6/51 of process was a charge granted by St Cross Homes (Winchester) over
the Winchester Snooker Centre, St Cross Road, Winchester dated 1 December 2020 in favour
of the defender and Mr Beard. The defender said that he had been unaware until the
present proceedings that those subjects formed part of the same site as that involved in
the Radley development. The property specified in the charge was that held under
title HP517470.
[152]
On 29 and 30 June 2023 the defender received a series of payments with the reference
"Assynt Holdings Li Ent House part pay" (CB 568), totalling £326,559 and a further payment
on 4 July 2023 ("Assynt Holdings Li Ent House interest") of £62,567. At the date of the proof
the defender no longer had a security over the Winchester Snooker Centre. He could not
recall when he had discharged that.
[153]
In relation to his director's loan with Assynt, the defender denied that he had been
repaid. The EKO loan had been repaid in June 2023. Some of that represented repayment
of the £500,000 that he had put into Enterprise House. The defender had asked his solicitors,
Bramsdon and Childs, to send the money in two tranches, one with interest due to Assynt,
52
and secondly the sum associated with his investment in Enterprise House. EKO had repaid
to Assynt the £741,000 due at the relevant date, a further loan of about £73,000 and interest.
[154]
The defender did not accept that it was in his interest to write down the Radley
and EKO loans as at 31 August 2020, that he had exhibited bias in doing so, or that he had
deliberately presented false and misleading accounts.
[155]
The defender reiterated that he had had difficulties with Assynt's bank account in
April 2021 and that was why he had had a sum of £220,000 remitted to a personal HSBC
account. Shown his personal Bank of Scotland account statement for account xxx0868, he
accepted that he had been able to pay sums from that account to Assynt between 1 April and
9 April 2021 carrying the reference "Radley". The account for Assynt (xxx2268) showed
payments in corresponding with the payments out of the defender's personal account in
early April 2021. On 12 April there was a payment out to Radley House of £220,000. On
26 April 2021 the defender made a further small payment into the Assynt account, and made
more payments into the account between September and December 2021. The defender said
it was easy to think looking at those statements that the bank account had been operating
normally, but that was not the case. His online App had not been recognising his login, and
his card reader worked only intermittently.
[156]
The defender accepted that correspondence from the Bank of Scotland dated
February and August 2023 indicated that the Assynt account had been closed because it
had been inactive since April 2022. The bank had sent notice of its intention to close the
account in September 2022. The defender could not remember when he had instructed
Mr Vanderhyde that the £220,000 should be paid into the HSBC account held by the
defender and his then girlfriend, Ms Georgina Williams. The sum was paid in two tranches
on 12 and 20 April 2021 (6/63). The defender denied that the account had been opened for
53
the purpose of receiving that money, but seemed to accept that there had been no earlier
transactions on the account. He could not recall when he had opened the account.
[157]
Bank records for H S Building and Maintenance, the party that repaid the money on
Radley's behalf showed payments out with the reference "Miss G Williams". The defender
was unaware that the director of H S Building and Maintenance was Ben Fooks, although
Mr Fooks' name was familiar to him as the author of an email forwarded to him by
Mr Vanderhyde. He accepted that the £220,000 had been used as part of the funding for
his current home. He accepted also that the sum shown as his director's loan in
Assynt's 2021 accounts included the additional advance of £73,000 to EKO, the £220,000
advanced to Radley and about £2,000 in accountancy fees. He said he had passed all
relevant information on to his accountants, but accepted that there was a glaring error that
he had not spotted regarding the repayment of the £220,000. He accepted that not only had
the repayment not been reflected, but that the value of the advance had been written down
by 80%. He could not comment on why his accountants had done that. He accepted that
his affidavit contained no explanation for the error.
[158]
Senior counsel asked the defender why the sums advanced by Mr Beard to EKO on
behalf of Assynt, so that Assynt would not be in default, were not reflected in the accounts
of Assynt as a debt to Mr Beard. The defender said that that was not how the transaction
worked. He accepted that he received £134,000 from Assynt in April 2022, and that the
accounts for 2022 demonstrated a repayment of £132,000 in respect of the director's loan. A
different firm of accountants had prepared the 2022 accounts. The debtor schedule included
in the account indicated that information about the loans to EKO and Grays had come from
the client. The entries for interest on the EKO loan read "Interest w/back of 2020 due to loan
default". The defender could not recall telling the accountants that the EKO loan was in
54
default. He had not been comfortable with reversing the impairment because there had
been significant issues on site and he believed the project had to be refinanced. Senior
counsel suggested that at the time he signed off the accounts EKO were about to repay
the loan in full with interest. He responded that he had heard on a number of occasions
that EKO were about to repay. He accepted that by 11 May 2023 when he signed off the
accounts, he had already discharged the security granted by EKO. He said that although
he had signed form DS1 relating to the cancellation of entries relating to a registered charge
in respect of the property at 61 High Street, Grays, on 7 March 2023 he had not received the
funds. He explained that EKO had not in fact refinanced, but had sold the property. He
was shown a charge over the same property also dated 7 March 2023 in favour of Lloyds
Bank granted by EFC Investments Limited, who appeared to have been the purchaser of the
property. He accepted that based on that information it appeared to be correct that he knew
when he signed off the accounts that Assynt would indeed be repaid by EKO. After receipt
of capital and interest from EKO the balance of Assynt's bank account in July 2023
was £1,050,738.
[159]
The defender accepted that a spreadsheet prepared by him (7/43) and lodged in
process on 11 January 2023 was inaccurate in that it failed to reflect the repayment of the
sum of £220,000.
[160]
Before committing to lend money to EKO through Assynt he had had a conversation
with Mr Vanderhyde who told him who the owners were, what the end value of the site was
likely to be, and that the developers who were buying the property intended to develop a
former pub into ground floor retail premises and flats above. Mr Vanderhyde was acting for
the sellers in the sale transaction. Mr Vanderhyde did not tell the defender that he had been
one of the sellers of the pub through an entity called Fat Goose. The defender received no
55
accounts from the borrowers. No credit checks were carried out. The first document he
received was the proposed loan agreement. The defender could not remember whether he
had received any valuations. There would have been a conversation that left him feeling
comfortable with the relationship between the loan and the end value of the site. He could
not recall having any information about the current value of the site.
[161]
The defender said that the terms of the loan agreement were important to him and
that he read the detail, but that he had never taken advice about a loan agreement. When he
started on the journey of investing in construction he had been successful with a small loan,
and subsequent loans had all followed the same "standard process". Although there was a
repayment date, Mr Beard's experience had been that such loans could run on. One would
be happy to wait because interest would continue to accrue. The charge and loan agreement
were 6/53 of process. The agreement provided for an advance of £559,000 with a further
advance of £500,000 by instalments in the manner set out in Clause 5. Clause 5.1 read:
"LENDER'S COVENANT FOR FURTHER ADVANCES
5.1
Covenant to make Further Advances
Subject to the provisions of clause 5.2, clause 5.3 and clause 5.4 the Lender
covenants with the Borrower to advance to the Borrower from time to time the
further sum of not exceeding in the aggregate (exclusive of the Present Advance)
£500,000 (Five hundred thousand pounds) by such instalments on as many occasions
and at such time(s) as the Lender in its absolute discretion shall decide, on request
from the Borrower.
5.2
A request for each Further Advance and site inspection.
5.2.1
Any request for a Further Advance shall be before 26 July 2020 and made
in writing by the Borrower to the Lender together with payment by the Borrower
to the Lender of £250.00 plus VAT (if any) in respect of a site inspection fee on each
occasion and at least 14 days prior to the requirement of the release of the same.
5.2.2. Before being required to release any Further Advance the Borrower shall
deal with any requirements the Lender may have to the satisfaction of the Lender
56
in the Lender's absolute discretion, including (without limitation) the Borrower shall
allow on each occasion a site inspection of the Property.
5.3
Enforceability
The covenant by the Lender in clause 5.1 shall not be effective or enforceable unless
at the time of the proposed further advance the Borrower has in all respects and at all
times observed and performed his obligations under this deed.
5.4
Total of further advances
The total of the advances for the time being made under this security shall not at
any time before the completion of the Development exceed 50% of the value of the
work done up to that time on the construction or works incidental to the construction
of the Development including the value of the interest of the Borrower in the
Property. The valuation is to be at the absolute discretion of the Lender. Should the
Loan exceed this the Loan (together with all interest and other sums due under this
deed) is to be immediately repaid by the Borrower to the Lender or at the absolute
discretion of the Lender, the Lender may agree to take additional security from the
Borrower.
5.5
Registration
The Lender is under an obligation to make further advances and application is made
to the Registrar for a note to be entered on the register to that effect."
In relation to Clause 5.4 the defender said that he was comfortable that Mr Vanderhyde
would give him updates as to the work done. He was not sure when EKO had requested a
further advance but it would have been after 25 July 2020. It was not made in writing and
was not accompanied by a cheque for £250. No site inspection took place before the further
advance was made. Mr Vanderhyde provided regular updates. No valuations were carried
out.
[162]
Although accepting that Clause 5.2.2 would have permitted Assynt to ask for cash
flow projections before advancing further funds, he would not have asked for those. The
loans would only ever be repaid by sale or refinance. He would get photographs from
Mr Vanderhyde of the stage the development was at.
57
[163]
Before making the loan to Radley the defender would have had a conversation with
Mr Vanderhyde. Mr Vanderhyde had worked with the builders in the past. He assured the
defender that it was a good opportunity. No credit checks were undertaken in relation to
the borrower or its director, Dean Paul Honeyman. There would have been a conversation
about the value of the land. Assynt's investment was to fund the purchase of the land. The
defender was not sure whether the borrower was the builder or whether a contractor was
the builder. The loan agreement was 7/104 of process. The property over which security
was taken was described as:
"All that freehold property known as Radley House, 8 St Cross Street, Winchester
SO23 9HX and registered at Land Registry under title HP613962 and the Blue Land
formerly part of land registered with title absolute at Land Registry under title
number HP517470 and the whole of the Blue Land is transferred from the Borrower
by way of the Transfer and the Borrower's title to the Blue Land is in the course of
registration by the Borrower's Conveyancer at Land Registry pursuant to the form of
the Transfer."
7/105 was a transfer of part of a registered title by St Cross Homes (Winchester) Limited to
Radley House Investments Limited of the Winchester Snooker Centre, which was being
transferred out of title HP517470 and to be registered against HP613962. It was over the
Winchester Snooker Centre that the defender had obtained a security on 1 December 2020.
The defender knew that the St Cross Homes development and the Radley development
were all part of the same site. The whole site was being developed into luxury housing.
[164]
There was no term in the loan agreement requiring repayment only when all of the
flats had been sold. The defender did not know when the conversation about that took
place with Mr Vanderhyde, but it was before March 2020. The defender accepted that the
photographs taken by the pursuer in February 2023 showed a complete development. He
was aware that six of the seven flats had been sold by the time of the proof. He had released
six properties from the security held by Assynt. The security remained in place only in
58
respect of one flat. He assumed that Radley had obtained money from the sales. Assynt
was owed about £1.5m and had not received any interest since April 2022, but he was
comfortable with that situation and had not taken any advice about obtaining repayment.
He initially professed to be unconcerned that Radley had delayed filing its accounts. He
was shown documents demonstrating that Radley had extended its accounting period so
that it ended not on 30 June 2022 but on 31 December 2022. It had then shortened it so that
it ended on 30 December 2022. Radley had last filed accounts on 30 June 2021. He said that
considering matters in the light of that information he would want to know why that was.
He was sure that if there were an issue Mr Vanderhyde would have told him.
[165]
Ross Stupart of RSM accountants advised the defender that in the light of the parties'
separation it would be advisable if the pursuer resigned as a director. RSM had been
involved in auditing Last Mile. Mr Stupart was the tax and managing partner, rather than
the audit partner.
[166]
The exercise the defender undertook in valuing the assets of Assynt "joined on"
to the work RSM had done for Last Mile. From about February or March there were
discussions around any impairment Last Mile might see in capex in installing utilities in
housing and commercial developments as a result of Covid and the restrictions they were
seeing. The defender's view on impairment was influenced by what he was doing at Last
Mile. He had been thinking about the impact of the pandemic from whatever date it was
that the country had gone into lockdown. He had carried out the assessment of Assynt's
assets ahead of mid-August, when RSM had asked him to prepare a paper supporting his
views. He had probably emailed it to them. The defender accepted that Assynt had a
different asset profile from that of Last Mile.
59
[167]
Senior counsel referred to an email exchange between from the pursuer's agent
and defender's former agent dated 13 and 18 January 2023. The pursuer's agents made the
following request, in relation to the loans to EKO and Radley:
"If the loan was written down in the Company's balance sheet at 31 August 2020
an explanation of the reason for doing so and the basis/supporting documentation
for the reduced value at which the loan was included in the balance sheet."
The defender's agent responded: "Graham does not have any notes between Assynt
Holdings and RSM in connection with the recoverability of the loan advances of EKO Grays
Limited." The defender maintained in his evidence that he did in fact have the 12 August
document at the time of that email exchange. He acknowledged that there was very little
information in that document about the specific situations of Radley and EKO, and that it
did not refer to any information he had received from Mr Vanderhyde. He had not been
aware of the precise nature of the commercial premises that were to form part of the EKO
development and did not think that would be important in assessing the likelihood of
sale or refinance. Last Mile had experience of dealing with house builders and some
smaller developments had come to nothing after the installation of infrastructure. He
acknowledged that his assessment so far as EKO was concerned did not take into account
the contractual term about the ratio of loan to value or to any of the terms of the loan
agreement.
[168]
As to his assessment of the Radley loan in the 12 August document, he said he could
not remember what entity he had meant when referring to the "borrower's construction
business". Mr Vanderhyde had told him that "they" were using furlough. He could not
remember the conversation that had given rise to the reference to furlough. The defender
had by 12 August 2020 seen the images produced as 7/42 of process. He initially said that
his understanding was that those were pictures of Radley House, showing the inside of a
60
Georgian building. He later acknowledged that they were in fact photographs of the EKO
development. He said he had provided photographs of Radley House to his former
solicitors. All the photographs he had came via Mr Vanderhyde.
[169]
Senior counsel asked the defender about the paragraph in the 12 August document
beginning "About 745,000 businesses ...". He said that at Last Mile he had daily conference
calls with Infracapital, and received daily reports from Moody's and the Office for National
Statistics. He was aware of what had happened to fund values in 2008. Part of the debt in
Last Mile was syndicated to Santander, and he had been in regular contact with Santander.
Santander knew that other banks were looking at government backed loans and how they
would deal with a PR disaster. He "would not disagree" that all but the final sentence of the
paragraph was "lifted" from an article in the "Financial Times"; he could not remember
where it came from. An article dated 3 June 2020 was produced (6/147) and he was asked
about it. He accepted that he had not referenced the article, and said that what he had been
provided with was calls with Infracapital. He had had the information that came to be in
the 12 August document.
[170]
The defender did not accept that he had failed to disclose the loans he had made
after separation, in the context of a specification of documents aimed at discovering his
current resources. He had considered it sufficient to disclose the sum he had received for
the sale of his shares.
[171]
In re-examination the defender emphasised that he had been Chief Financial Officer
of Last Mile with access to a group finance director, a commercial director, and several
quantity surveyors. He had had access to all the information provided to Last Mile's
auditors. He had seen difficulties with small developments particularly. If he had known
that he would need in the future to justify his decision to write down the loans he would
61
have produced a "voluminous" document. The defender did not answer directly a question
from his own senior counsel as to whether RSM had asked him to set out his reasoning in
more detail, but said that he had had "two hats" one, one as a Chief Financial Officer for
Last Mile, and the other, in relation to Assynt, as an individual. He insisted that he had not
had accessed the "Financial Times" to find the passage. Ninety per cent of his information
had come from Infracapital.
[172]
The commercial justification for lending £220,000 to Radley in April 2021 had
been that it would increase the chances of his recovering his money in due course. He had
understood that Radley had decided to make changes to the development. Mr Vanderhyde
had then called him and said that the developer had had a change of heart. He had been in
a "silly phase in his life" when he opened a joint account with Georgina Williams. There
had been an opportunity to buy a house with her, but he had not been in a fit state of mind
to make decisions of that sort.
Patrick Vanderhyde
[173]
The diet of proof did not conclude in the days assigned, and as a result
Mr Vanderhyde gave evidence about 3 months after the defender did. As a result he was
able to provide information about repayment of the Radley loan that had occurred after the
defender had given evidence.
[174]
Mr Vanderhyde is 50 years of age and has worked as a financial adviser since 1999.
He gave evidence that he held CEFA1, CEFA2, and CMAP 1, 2 and 3 qualifications, and that
he was authorised by the Financial Conduct Authority as a mortgage and protection adviser.
He said his main work was brokering deals between borrowers and lenders.
62
[175]
The witness first met the defender in 2019. Both of them knew Mr Beard.
Mr Vanderhyde knew the people who owned Radley and had done deals with them in the
past using different business entities. They wanted funds to buy Radley House. He did
"some due diligence" on the project and put the deal to Assynt. Assynt loaned moneys
and were provided with a first charge. Mr Vanderhyde only visited the site on two or
three occasions out of curiosity to see how things were developing. Those visits were at a
very early stage of the project, just before and after the loan was made. It was not part of his
remit to monitor the work. He did obtain information about progress from Radley's project
manager and discuss it with the defender.
[176]
The original agreement had been for repayment within 2 years. The borrower
requested to repay on the sale of the last flat. Mr Vanderhyde put that proposal to the
defender and he agreed. Radley repaid about £1.4m in February 2024. There had been
no repayment before then, other than of the £220,000 advanced in April 2021. There was
approximately £100,000 of capital still outstanding, and no interest had yet been paid. There
was still one flat on the market.
[177]
Mr Vanderhyde had passed to the defender an email dated 12 August 2022 from
Ben Fooks. It contained an account of difficulties encountered in the development of Radley
House. It said that in and around August 2020 the property had been stripped out in
preparation for construction and was in a state of disrepair. It also included a timeline of
events. Some, including a delay to works in February 2020 when human remains were
found and an archaeological dig assessment was required, predated the relevant date. The
timeline also included a number of items that did not. The author narrated that lockdown
measures had impacted staff availability until 10 May when the rules started to lift, and that
when the work force started to return, there were still issues with suppliers. As far as
63
Mr Vanderhyde was aware the dates in the time line were accurate. He would have spoken
to Mr Fooks at the relevant times and relayed the information to the defender. So far as
the archaeological issues were concerned, Mr Vanderhyde did not know what internal
and external work had been allowed to continue while those were being investigated.
He thought the issue was on a particular part of the site and arose during excavation of
some of the foundations.
[178]
Mr Vanderhyde had not previously dealt with the owners of EKO but they were
introduced to him by the sellers of the site, who were his clients. Again he did some due
diligence and Assynt agreed to lend money. He visited the site on twenty occasions as
part of his job was to monitor the works. He had no formal qualifications in assessing the
progress of building works, but had experience through ten projects in which he had been
involved himself, and in relation to loans arranged by him. There were two types of visits.
The first would be to deal with reported problems or changes relating to the project, and the
second would be a stage payment visit when further money was provided to continue with
the build. Mr Vanderhyde would produce photographs for the defender, particularly in
relation to staged payments. He had taken the photographs in 7/43 in summer 2020.
[179]
A lot more of the building needed shored up than had been thought initially, and
that increased costs. In August 2020 the development was at an early stage and the building
was an open carcase. He would speak to the defender once every 4 to 6 weeks. He went
on to say that they spoke more often during the pandemic. That was typically by phone.
They did not meet in person to discuss either the EKO or Radley site. They had some email
discussions.
[180]
Mr Vanderhyde had passed an email from Ozgur Orman, dated 13 July 2022, to
the defender. Mr Orman was one of the directors of EKO. He was not known personally
64
to Mr Vanderhyde. The email set out a list of difficulties encountered in the project.
Amongst other things, it narrated that Covid had caused delays in materials and labour;
and as at August 2020 the building was a "shell and core", subject to delay, and over budget.
Mr Vanderhyde said that the contents of the email accorded with his own knowledge of the
project and that he had been informed about the issues at the times they arose. An issue
that caused the contractor to leave the site, and require to be replaced, had arisen at an early
stage in the project. The first lockdown occurred, and that gave rise to increased costs and
difficulties between the contractor and the client about agreeing a revised price. The client
had to fund shortfall in about July 2020. Mr Vanderhyde had made the defender aware
of all these issues at the time. An issue narrated in the email about the roof structure had
occurred after summer 2020, as had an issue about retrospective compliance with building
control requirements.
[181]
EKO had been close to refinancing with Barclays at one point but had not achieved
that. The defender had been pressing for repayment.
[182]
Mr Vanderhyde met the defender and Mr Beard in Glasgow on 5 March 2020.
They discussed various business opportunities. Mr Beard had loaned £2m for a project to
develop Enterprise House in Portsmouth. The defender agreed to lend £500,000 to reduce
Mr Beard's exposure in the development. Following that meeting Mr Vanderhyde sent
the letter dated 1 June 2020. As a result of what was agreed the defender was committed
to lending £500,000 although he did so later than had been planned because of the timing
of repayment from Zebra Homes. Mr Vanderhyde's role was to broker the arrangement.
[183]
As the defender had not provided money for the project at the outset he was not
given a security over Enterprise House. Mr Beard thought he really should try to give
65
the defender some form of security, so decided to put his name on a security granted by
St Cross Homes.
[184]
In cross-examination Mr Vanderhyde said that he operated principally through
Flagstone Capital Limited. When brokering deals of the sort in which the defender was
involved Mr Vanderhyde was not regulated by the Financial Conduct Authority. He
nonetheless had regard to the regulations concerning money laundering when doing
unregulated work. When asked specifically about whether he would discuss with his client,
in the course of unregulated work, the risk profile of the loans and the appetite of the lender
for risk, he said that that would not be addressed specifically, but be encompassed in a
broader discussion of the loan in question. Mr Vanderhyde would provide information
about the proposed loan to the defender, with no additional information coming from the
borrower.
[185]
He worked with quite a few solicitors in relation to such deals, but had used
Bramsdon and Childs on some occasions. When a loan was redeemed the funds would
be remitted to the lender's solicitor. If a borrower was in default he would liaise with the
lender and provide information on what the current situation was with the borrower. That
would be to help understand why the project had taken longer, and to learn whether the
lender wanted to enforce the security. He would try to work with both parties. Both EKO
and Radley had not repaid on the due date, and Mr Vanderhyde had acted as go-between
for borrower and lender. In a number of loans there was a provision for annual interest or
for a roll up of interest if the lender agreed. He would be involved in requests for the rolling
up of interest.
[186]
Mr Vanderhyde accept that, as evidenced by emails produced as 7/109 and 6/45,
he had been involved in the redemption of the Zebra loan, and in communications about
66
to whom the funds were to be paid, and the discharge of the security in September and
November 2020. He characterised the nature of the Enterprise House transaction as a loan
by the defender to Mr Beard, and which Mr Beard required to repay to the defender. The
interest rate was to be 8% per year, and there was no date of repayment. Asked whether
interest was to be paid annually, Mr Vanderhyde replied that it was "annually on review".
He said that meant that as long as Mr Beard got his 8% interest he would pass that on to
the defender. That meant that the defender's receiving interest depended on Mr Beard's
receiving interest. Mr Vanderhyde had received a broker's fee. Asked who had paid that
fee, he said it had been paid by the borrower. He did not mean Mr Beard but "the ultimate
borrower". He could not remember who that was.
[187]
The arrangement was discussed at the meeting on 5 March 2020 and was "pretty
much agreed at the meeting", and the parties agreed the "final points" afterwards by phone.
There had not been a three-way phone call. There may have been a Zoom call. The ultimate
borrower was not involved. They had paid a fee when the initial loan of £2m was arranged.
They thereafter paid an annual brokerage fee. The original plan had been to speak to the
"original solicitor" and get the charge amended to show both Mr Beard's name and that of
the defender. No thought was given to assigning part of the loan to the defender, and no
solicitor had been asked to advise about that. Mr Beard usually took payment of interest
annually, on the anniversary of the loan. It was at that point that Mr Vanderhyde would
receive a further brokerage fee.
[188]
When asked why there was a delay between the meeting of 5 March 2020 and the
letter dated 1 June 2020, Mr Vanderhyde said that he guessed that he, Mr Beard and the
defender were still in discussion. Mr Vanderhyde accepted that the loan had been due for
repayment in January 2019 and that the borrower was already in default in March 2020.
67
The borrower and Mr Beard had, however, agreed that the loan would be ongoing. Asked
whether he had, as the go-between, talked with the defender at the meeting about the site,
the circumstances of the borrower and the exit strategy, he responded that there was no
exit strategy, as the loan was ongoing and that they would have spoken about that at the
meeting. It was his practice to provide advice about unregulated products verbally rather
than in writing, although there might be email correspondence as well. He would not
provide a client with a document setting out the risks and information about the borrower.
Those matters would be discussed verbally and the legal advisers would provide any
necessary documentation. He did not think there had been a discussion with the defender
about his attitude to the fact that the loan was already overdue. He thought that the
defender found the arrangement for interest to be acceptable. He had not mentioned that
there had already been a missed repayment date.
[189]
The inclusion of the defender's name as a creditor on the agreement with St Cross
Homes created an obligation on Winchester Homes to pay not only Mr Beard but also the
defender. Mr Vanderhyde did not think that the attention of St Cross Homes was drawn
to that before the loan agreement was drawn up. He would "just have instructed the
paperwork". He was aware that the property was adjacent to Radley House.
[190]
Mr Vanderhyde said that the loan to Axis had not been repaid, but that the defender
had been repaid the £500,000 he had advanced. The defender had been repaid some money
from the proceeds of the loan to St Cross homes when that loan was redeemed. Mr Beard
had provided part of the funding for the EKO loan and on the redemption of the EKO loan
Mr Beard had settled the remains of the advance that the defender had made to him in
respect of the Enterprise House transaction.
68
[191]
TC Project Management (TC) had introduced Mr Vanderhyde to EKO.
Mr Vanderhyde was the sole director of Fat Goose Property Developments Limited
(Fat Goose). Fat Goose provided TC with a second charge loan to help them finish the
development of the Pullman Tavern (the site of what became the EKO development).
TC had "done the site behind". They had been supposed to be "doing the front". The
site had been repossessed by the holder of the first charge. Fat Goose lost its investment.
When EKO purchased the site, the first charge holder received their capital, and wrote
down a substantial sum in interest. Fat Goose received nothing on that purchase, but
recovered £185,000 of a £500,000 investment "in an arrangement with the sole director".
Asked whether he had disclosed to the defender that he had a financial interest in the sale
of the site, he responded that there were two separate sites. The interest of Fat Goose was
in the site behind. He did not think it was relevant to tell the defender of that interest.
[192]
Mr Vanderhyde was shown 6/83, a record from HM Land Registry relating to
61 High Street, Grays. As at 12 March 2023 it showed the proprietor as EFC Investments
Limited. The register of charges included an entry narrating that a transfer of the land in
the title dated 26 September 2019 made between TC, EKO, CPB Residential Finance Limited
and Ian Wallaker (Builders) Limited contained restrictive covenants.
[193]
When preparing to offer Assynt the opportunity to lend money to EKO,
Mr Vanderhyde had a valuation from Savills. He could not remember what the valuation
of the Pullman Tavern had been, but he thought the site was valued at £1.5-£1.7m with a
finished value of more than that. He had seen the contractor's quotations and he had also
had discussions with Barclays, who were EKO's bank about providing an exit strategy. He
believed he had provided the defender with the valuation from Savills, but could not say
without checking his records. He could not confirm whether he had shown the defender
69
the contractor's quotations. He had nothing in writing from Barclays, but would have had
a conversation with the "bank managers". The exit strategy was to rent out the five flats
above the retail unit, and the developers, who operated a chain of supermarkets, would run
the retail unit as one of their own stores.
[194]
In relation to payments after the first advance of £559,000, Mr Vanderhyde said that
the contractor would have split the building into stages and there would have been stages to
trigger further draw downs. He had satisfied himself that the stages had been met to allow
further payments by Assynt. As to the payment of £73,119 on 18 September 2020, he could
not say what stage had been met to trigger that payment. He would not have told Assynt
to make a payment if the appropriate stage had not been achieved. He could not remember
whether, in terms of the loan agreement, there was to be a calculation of the value of the
loan to works ratio before further advances were made. He thought it was standard
terminology in the contracts. The 18 September 2020 payment would have been requested
by EKO "shortly before" that date. Information that they had reached the appropriate stage
would have been provided about a week before the payment. He would be invited to the
site and would provide photographs and an update as to the description of the works to the
defender to enable Assynt to make the payment. There would be an email trail in relation to
stage payments and there would also be verbal communication.
[195]
Mr Vanderhyde kept a spreadsheet in relation to the loan in order to assist with
the calculation of interest. He recorded on it matters such as the dates of further advances
provided by the lender. He thought he had provided it to the defender. Both the lender
and the borrower were his clients in a transaction of this sort. He did not consider that he
was providing advice to a lender when seeking from the lender a further advance requested
by the borrower. He was simply giving information as to the stage the project had reached.
70
He could not say on whose behalf he monitored the progress of the works. He said that he
guessed that "it [was] a bit of both ultimately", which I took to mean that he was acting for
both borrower and lender in doing so. In relation to the twenty visits he had made to the
site, he said that that was more for the lender's benefit, although the lender did not pay him
for that service.
[196]
Mr Vanderhyde did not know why the defender had asked him to obtain the
information contained in Mr Orman's email of 13 July 2022. His own covering email to
the defender narrated that he was attaching an email with photographs from the contractor,
but he believed that the photographs he sent were the ones that he personally had taken
and which were lodged as productions. He did not know why payment from EKO had
come only in June 2023 when the property had been sold and the security discharged in
March 2023.
[197]
The loan provided to Radley was to acquire property, and not to fund its
redevelopment. Mr Vanderhyde could not remember the name of Radley's director, but
accepted that it was Dean Paul Honeyman. He had known Mr Honeyman for 7 or 8 years,
and also Ben Fooks, whom he described as a shareholder in Radley. Mr Fooks was generally
Mr Vanderhyde's point of contact. Radley were referred to Mr Vanderhyde by other clients,
but he had also previously done regulated work for Mr Honeyman and Mr Fooks. Mr Fooks
was a director of HS Building and Maintenance Limited, who were the builders involved in
the Radley development. Mr Vanderhyde had advised the defender on the pros and cons of
agreeing to repayment only on sale of the last flat. The pros were the amount of interest that
would accrue, and the cons were that the value of the security would get to a level where it
would be less than the amount loaned. He had given that advice by phone, but could not
remember when he had done so. He did not advise him that there might require to be a
71
variation of the loan agreement or advise him to seek legal advice about that. There was no
direct communication between borrower and lender about the matter. Radley had started
selling the flats by May 2022. It had been a concern that the loan was not repaid at a point
when six of the seven flats had been sold, but Mr Vanderhyde had done business with the
same people before and they had always repaid their loans. There had been a personal
guarantee from Mr Honeyman.
[198]
In April 2021 Mr Fooks requested a further advance to assist with cashflow for
proposed additional works. There was no paperwork provided to the defender in relation
to that request. There would have been an email trail in relation to the request involving
himself, Mr Fooks and the defender. Radley changed their mind and so did not need the
funds, and returned them to the defender. The conversation relating the change of heart
had occurred between 10 and 12 April 2021. Mr Vanderhyde provided the details of the
account to which the money was to be returned. The defender provided him with that
information, and must have done so between 10 and 12 April 2021. The defender said he
had an issue with the account he wanted the money to be sent to and provided alternative
account details. That had not triggered any concern in Mr Vanderhyde in relation to any
obligations he might have relating to the prevention of money laundering.
[199]
The defender started pressing for payment. He had been stressed in relation to
court cases but had "got his head straight", and the magnitude of the loan in relation to the
remaining security started to become a concern for him. The conversation started when the
last flat remained unsold. The defender had been asking for payment all through 2023.
[200]
Mr Vanderhyde's covering email sending Mr Fooks' email of 12 August on to the
defender wrongly narrated that Mr Fooks was the director of Radley. Mr Fooks was
managing the works on the development and had a better understanding than the director
72
of the issues with it. The timeline Mr Fooks provided, although extending into 2022, did not
mention the marketing of the flats for sale in 2022.
[201]
Mr Vanderhyde had not brokered a loan that the defender provided to St Cross
in November 2023. He had brokered loans to Altavia, Lion's Den Developments and
Shaun Pridmore. The payments were made by and to Bramsdon and Childs, solicitors.
Although he had spoken to the defender since the defender gave evidence, he had not
discussed the case with him. Their discussions had been about lending by the defender to
Mr Fooks.
Alan Robb
[202]
Mr Robb provided reports regarding Assynt (7/40 and 7/149) and Drinks
Warehouse (7/44 and 7/149). He adopted those reports.
[203]
It was up to Assynt to choose its year end. It would usually be 12 months after
the company started trading. It had not started trading until August, and it would not
be unusual to run the accounts for 12 months after that. Directors of a company had an
obligation not to overstate the asset value of the company, because that might mislead
creditors. They had to state a fair value, which was a market value or realisable value.
The need for prudence was reflected in paragraph 2.9 of the financial reporting standard.
[204]
Mr Robb had asked about the basis on which the decision to write down the loans
had been made. He was provided with the emails from Mr Orman and Mr Fooks. The
state and stage of development of the properties was relevant because the company would
only be able to repay the director's loan if it were it able to receive repayment of the loans to
EKO and Radley. Mr Robb had not made any inquiry into the accuracy of the information
in the emails from Mr Orman and Mr Fooks. He had seen the photographs of the EKO
73
development. He understood the information in those emails to have been information
that the defender had when he was considering writing down the loans.
[205]
Mr Robb included those emails as appendices to his report. He did not include the
12 August document as an appendix. He said that that was because it was not information
from a third party. He thought it was "just [the defender's] paper to support his decision of
writing down the loans". He did have the 12 August document when preparing his report,
which was dated 21 December 2022. There was nothing in the macro-economic view set out
in that document with which he disagreed, nor in the section headed "Micro economic view
for the UK". The information in the paragraph beginning "About 745,000 ..." was
information that was in the public domain. If it turned out to be information taken from an
article which senior counsel described as "by the former chancellor", that would not change
Mr Robb's view.
[206]
The document showed that the defender had considered the cash position of the
borrower and the possibility of a forced sale, so far as EKO was concerned. In relation to
Radley the document showed that he had considered the ability of the borrower to generate
cash, and the underlying value of the property developed. In relation to Radley there
would be no cash coming in until the property was developed and sold, and that was not
imminent. It was also difficult to see how any cashflow could be predicted for EKO with
certainty or accuracy. It would have been difficult to get a surveyor to value either project
at the relevant date because no-one knew how things would turn out when the pandemic
was over. The value of the director's loan was nil. Mr Robb was told that the defender's
solicitor had tried to find an expert to give an opinion on the value that a buyer would have
been prepared to pay on the open market to take an assignation of the defender's director's
74
loan, but had been unable to do so. That might suggest that the value of such an assignation
would have been nil at the relevant date.
[207]
Drinks Warehouse was a drinks wholesaler based in Kent which supplied the
hospitality industry in South East England. It raised £2m of equity funds to expand its
existing business. In the year to 31 May 2019, when the investment was made, it incurred
a loss of £460,566. The accounts for the following accounting period to 31 December 2019
reported a profit of £109,851. Thereafter the company incurred losses of £1,115,000 in the
period to 31 December 2020. That was reported in the Percipient investor report. It reported
a loss of £2,186,318 for the 18 month accounting period to 30 June 2021. The defender had
invested in the company as part of a fund raising exercise by Percipient, a wealth
management enterprise, who raised private equity funding for small and medium sized
companies like Drinks Warehouse.
[208]
In Mr Robb's view the company had no value either on an earnings or assets basis
at the relevant date. It was incurring significant losses, and the prospects of the hospitality
sector were uncertain. He accepted that at around the relevant date the government had
provided assistance to the hospitality industry in the form of the "Eat out to help out"
scheme. That was, however, a temporary scheme designed to prevent mass unemployment
in the sector. Mr Robb did not think that there was a quantifiable value associated with
"hope value". No one would have paid anything for the defender's shares at the relevant
date.
[209]
In cross-examination Mr Robb accepted that if it were appropriate to write down
assets in a particular manner for accounting purposes, the value to which they were written
down might not reflect their value as between a willing buyer and a willing seller. The
information he had as to the value of the EKO loan was that to which he had referred in his
75
report. He could not remember what he had been provided with when first instructed. He
thought he had been given the accounts of Assynt. He had then asked for information about
the loans and been given a spreadsheet and the emails from Mr Orman and Mr Fooks. He
received the 12 August document at about the same time, when he requested information.
[210]
Mr Robb would have been interested to know that the change of accounting year
end and increase in share capital had been effected without the knowledge of the pursuer.
Mr Robb had not considered how long it had taken the defender to sign off the 2020
accounts. He accepted that if one had very limited information it would be necessary to
exercise caution when that information derived from an individual with an interest. He
accepted that it would be relevant to know that a director who had written down a loan
by 90% proceeded only weeks later to advance a further sum to the borrower. He did not
know if he had been told about the further advance to EKO, but said that a lender would
have to consider whether to withhold funds, which might further impede the project, or
advance them in the hope the project would proceed. There had been a great deal of
uncertainty at the relevant date. Mr Robb had not been provided with any reports by
anyone who had been monitoring the condition of the developments.
[211]
He would normally be interested in the existence of a security, but at the relevant
date it had been difficult to get surveyors to provide valuations. The value of the land
before the pandemic was irrelevant. He could not comment on whether it would have
been prudent for the directors to wait longer than the defender did to finalise the accounts.
Mr Robb had been unaware that the final two issues narrated in Mr Orman's email, in
relation to building control and a design fault with the roof, were not known at the relevant
date. He had been unaware that Mr Fooks was not a director of Radley. There was not
sufficient information in the emails to permit any assessment of the values of the properties.
76
He did not know to which property the photographs he received related. He assumed they
related to both. Mr Robb accepted that a property under construction was not without a
value. His report narrated that a third party investor provided funds to continue the EKO
development and that their security ranked in priority to that held by Assynt. He did not
know whether that had been the case at the relevant date.
[212]
Mr Robb had been unaware of the inaccuracies in the accounts of Assynt in later
years, and of the arrangements for repayment of the £220,000 advanced to Radley in
April 2021. He did not know that the security granted by EKO was discharged before the
defender signed off the 2022 accounts, or that the loan had been repaid in full. He had not
been told that six of the seven flats at the Radley development had been sold by the time of
his report.
[213]
In re-examination Mr Robb accepted that he had been given information to indicate
that the photographs related to the EKO development. It would have been irrelevant to
consider whether the loans were repaid or the condition of the developments in 2022,
because that was not known at the relevant date.
Submissions
[214]
There was no dispute between the parties as to the law that I required to apply.
Pursuer
[215]
The pursuer sought orders for divorce and for payment of a capital sum of £2,265,000
payable within 28 days of date of decree of divorce with interest at the rate of 8% per annum
from the date of service of the summons on 14 February 2022 until payment. She also
77
sought incidental orders ancillary to the order for payment of a capital sum in the following
terms:
(a)
Ordaining the release to the pursuer of the whole sums held on joint deposit
on behalf of the parties by Gebbie & Wilson LLP in respect of the sale of
Overhall Farm and to order that one half of the total sums paid to the pursuer
constitute a payment to account of the capital sum due by the defender to the
pursuer;
(b)
Ordaining the sums held by the parties jointly with Walker Crips to be paid
to the pursuer and to order that one half of the sums paid to the pursuer
constitute a payment to account of the capital sum due by the defender to the
pursuer; and
(c)
Ordaining the sums held by the parties jointly with Standard Life to be paid
to the pursuer and to order that one half of the sums paid to the pursuer
constitute a payment to account of the capital sum due by the defender to the
pursuer.
[216]
She recognised that there was an issue as to whether the court should make an
order for the transfer by the pursuer to the defender of her share in Inverkirkaig, and as
to whether the court should order the sale of the parties' boat. If there were to be an order
for transfer in respect of Inverkirkaig, the pursuer should receive her full capital sum in
exchange.
[217]
The defender had not established in evidence that he had a liability of £500,000 at
the relevant date in respect of an obligation to pay that sum to Mr Beard in relation to
Mr Beard's loan to the developers of Enterprise House. If he had, there was a corresponding
obligation on Mr Beard to repay the sum. The pursuer had established that the £19,500 in
78
her Bank of Scotland account was not matrimonial property. The defender had no record
for any loan to the pursuer's mother, and there was no evidence to support the proposition
that there was such a loan.
[218]
I set out below my conclusions in relation to the balances on various of the parties'
bank accounts and do not rehearse the submissions about these here. Senior counsel invited
me to accept Mr Bathgate's evidence about the value of the Land Rover Defender and the
Audi, and Mr Robb's evidence about the defender's shares in Drinks Warehouse.
[219]
Assynt's assets derived from matrimonial property and in particular from an NS&I
account in the sole name of the pursuer. The loans were funded by a director's loan account
in the name of the defender. The company owed the defender £2,276,536 at the relevant
date. The defender had no proper basis for writing down the loans to Radley and EKO.
There was no evidence to support his having done so, or to support the view that the loans
were not recoverable. The basis for writing down the loans proceeded on the assertion of
the defender. He was not a credible or reliable witness. His evidence was not supported by
that of Mr Vanderhyde, who offered no view in his evidence as to the recoverability of either
loan. The pursuer had calculated that the tax after profit that Assynt should have declared
to 31 August 2020 was £115,542.
[220]
The pursuer did not suggest that I depart from equal sharing, but submitted that in
the absence of equal sharing of the full fruits of the economic efforts of the parties during
the marriage she would suffer economic disadvantage, and the defender would benefit
from economic advantage. The defender was seeking to deprive the pursuer of an equal
share in the value of his director's loan at the relevant date, in circumstances where EKO
had repaid in full with interest at 9% per year, and Radley had repaid around £1.4m. The
pursuer had made sacrifices in her career to look after the children of the marriage. That
79
enabled the defender to take roles of his choosing which generated capital gains. After
separation she used funds in her accounts to support the adult children of the marriage.
[221]
The defender had liquid assets available to him from which to make payment.
The schedule produced with his affidavit was misleading and incomplete. It did not include
current values for his pension, the sums held on joint deposit receipt with Gebbie & Wilson,
or the funds available to Assynt to repay his director's loan following repayment of the EKO
loan. He had also received, since compiling the schedule, around £1.4m from Radley.
Senior counsel disputed the submission for the defender that the sum would be subject to
corporation tax, in the context of repayment of the director's loan.
[222]
The defender had been using matrimonial assets since separation and had earned
interest on them, and I should award interest on the capital sum. In the course of
discussions counsel recognised that the sum on joint deposit receipt had been earning
interest, and that it might be desirable to address the question of the sum on which interest
might run at a by order hearing.
Defender
[223]
The defender moved the court:
(a)
to sustain his second plea in law and to order the transfer by the pursuer to
the defender of her whole right title and interest in the parties' jointly owned
heritable property at Inverkirkaig;
(b)
of consent to sustain the pursuer's second plea in law and that to the
extent only of finding the pursuer entitled to payment of a capital sum by
the defender of £756,803 payable within 8 weeks after the date of decree
80
of divorce to follow hereon; with interest on any unpaid part thereof at
the rate of 8% per year from the date same falls due until payment; and
(c)
to make an order under s 14(2) of the Family Law (Scotland) Act 1985 for
the sale by the defender of the parties' jointly owned 6.5m "ES" rib boat
and 150hp Mercury engine and for the equal division between the parties
of the net free proceeds of the sale.
[224]
The pursuer's attacks on the credibility and reliability of the defender were
unfounded and misconceived. She had formed, erroneously, the impression that since
separation he had conducted his financial affairs in a manner such as to deprive her of her
entitlement to fair financial provision on divorce. The defender was a credible and reliable
witness who accepted that he had made some errors in relation to Assynt's accounts. There
were elements of informality in his business dealings, but that was not a proper ground
for suspicion when the individuals involved operated on a basis of mutual trust.
Mr Vanderhyde had no interest in the outcome of the proceedings. Although advice given
in his unregulated business brokerage appeared to have been less rigorously recorded than
one would expect in relation to regulated business, Mr Vanderhyde would not be able to
operate in business were he not considered honest, truthful and reliable by those with
whom he dealt.
[225]
Neither party had established the value of the contents of the matrimonial home,
and the precise division between them had not been established. Both parties had removed
and retained items. The court should proceed on the basis that an equal division had been
achieved. The parties' boat should be sold, and the value of the horse trailer at the relevant
date had not been proved.
81
[226]
The pursuer had failed to prove that the £19,500 in her Bank of Scotland account
was part of a gift from her mother. She had not produced bank statements that might have
vouched the position, or led evidence from her brother.
[227]
The court should reject the evidence of Mr Bathgate. He had assessed the value
of the Land Rover Defender to a special purchaser. He had acknowledged that adapted
vehicles of that marque were advertised in specialist publications, but had not attempted
any comparison with such vehicles. Mr Bathgate had not seen the Audi, and it sold for
much less than his valuation in October 2021.
[228]
Interest had been applied to the joint NS&I accounts only after the relevant date and
should be left out of account.
[229]
The defender was uniquely well-placed to assess the realisability of the loans to EKO
and Radley, given his role as CFO of Last Mile, which provided him with access to relevant
market information. Last Mile had itself carried out an asset impairment exercise in relation
to the impact of the pandemic. The defender properly took into account information he had
about the development sites from Mr Vanderhyde. It would have been difficult to obtain
valuations from surveyors and in any event the value of the sites would have decreased in
the destructive phase of development. Cash flow assessments would have added nothing
because the companies had no cash flow at the relevant date and funds depended on the
sale of the developments. Further lending was justified because it might enhance the
prospects of recovering the loan eventually. Mr Robb regarded the write-downs as "not
unreasonable", but thought the defender should have gone further and written the loans
down to nil. I should prefer the evidence of Mr Robb to that of Mr Rowand so far as Drinks
Warehouse was concerned.
82
[230]
The evidence established that at the relevant date the defender had an obligation to
pay Mr Beard £500,000.
[231]
Parties were agreed that if the pursuer were to transfer her share of Inverkirkaig, the
value of her interest in the title at current values was £98,750.
[232]
The defender submitted that there was no justification for a departure from equal
sharing in favour of the pursuer. There was no basis on which to conclude that the pursuer
would have become a partner in Ernst and Young had she continued to work there. She
chose to give up work for a period. She had in any event continued to work for most of the
marriage. She now had a successful business of her own. The court should depart from
equal sharing by recognising to the extent of £15,000 the advantage derived by the pursuer
from the assistance the defender gave her in the initial stages of her own business.
[233]
By the stage at which submissions were made the defender no longer advanced any
argument that his resources would not permit him to meet an award. Assynt had by then
received funds in respect of the Radley development. Senior counsel was instructed that
those funds, which had been referred to in evidence as being in the region of £1.4m, were
in fact £1,479,230. They would be subject to corporation tax. Senior counsel for the pursuer
disputed that, on the basis that the director's loan would be repaid. That would not give rise
to corporation tax. Only the income derived from the loan would represent profit to the
company.
[234]
So far as interest was concerned, there was no debt readily ascertainable at the date
of separation or service of the summons. Part of the matrimonial property, namely the net
proceeds of sale of the matrimonial home had been accruing interest for both parties. There
had been a discharge of a diet of proof on the motion of the pursuer and the defender ought
not to have to pay interest for the period by which the proof had been delayed.
83
[235]
The defender insisted in an objection to a line of evidence that in advancing funds to
assist Assynt make payments to EKO after the relevant date Mr Beard was lending money to
Assynt, and that such a loan should have been reflected in Assynt's accounts. There was no
record for that suggestion.
Conclusions on the evidence
Credibility and reliability of witnesses
[236]
I regarded the pursuer's evidence as generally credible and reliable. She was wrong
in relation to two matters in her evidence. She suggested that she was entitled to 41% of the
net profits of Assynt. That is wrong. Her shareholding at the relevant date was one of 7%.
She also suggested that Assynt should have written down the director's loan account
because it had written down the assets of the company. Senior counsel for the defender was
correct to point out that she was wrong about that, and that that analysis failed to recognise
the distinction between Assynt's position as a debtor and its position as a creditor.
[237]
The pursuer had, however, correctly identified a number of discrepancies in the
accounts of Assynt, occurring over a number of years. The defender criticised her for being
unduly suspicious about the conduct of his financial affairs since separation, and suggested
that her evidence was coloured by that. I have found a number of her suspicions to be
well-founded.
[238]
I did not regard the defender's evidence as credible and reliable in relation to matters
which bore on his financial interests. I reached that conclusion mainly for reasons given
more fully in the part of this opinion dealing with his writing down of the EKO and Radley
loans under the heading "Assynt".
84
[239]
A number of passages in the defender's evidence demonstrated a tendency to
exaggeration. He referred having been left homeless when the pursuer left. He vacated the
matrimonial home, agreed to its sale, and rented property in which to live. He was not left
without living accommodation. He had money at his disposal. He has since purchased a
house.
[240]
The pursuer submitted that I should place some weight on the non-declaration of
the defender's Aviva pension in assessing the defender's credibility. I have not done so.
The pension is a small one deriving from a period of employment many years ago. Its
existence emerged from a valuation lodged by the defender himself. I do not consider that
the defender intended to mislead the pursuer or the court in relation to it, and I attribute the
non-declaration to inadvertence.
[241]
It is difficult to understand why the defender should have referred to and relied on
the email from Mr Lea in his affidavit when its content is at odds with his own account in
the same affidavit of both how and when the Land Rover came to be delivered to Shropshire
in 2020. Mr Lea's emails relate that the vehicle was shipped to him in July with a fault,
whereas the defender's account is that he drove the car to Mr Lea in September 2020 and
experienced some unusual engine noise on the way. I have not required to determine
how this may have come about, or why, and have not placed any particular weight on it
in assessing the defender's credibility.
[242]
The evidence of Mr Vanderhyde provided relatively little assistance to me in relation
to the matters disputed between the parties. I was cautious about accepting his evidence as
accurate and reliable. Parts of his evidence related to business enterprises in which he was
involved. He said that he had a role in monitoring the works in the EKO development but
had no qualifications in valuing works, and his evidence was not assisted by any records
85
of site visits or valuations of the works. He did not document his discussions with the
defender about unregulated investments to which he introduced him, or about any risks
associated with them.
The merits
[243]
I am satisfied that the marriage has broken down irretrievably and that I should
grant decree of divorce. The pursuer's case is that the irretrievable breakdown of the
marriage should be found to be established because the defender behaved during the
marriage in such a way that she could not reasonably be expected to cohabit with him.
The defender did not admit the pursuer's averments, but offered no submissions in relation
to the merits.
[244]
The pursuer's case was that the defender was verbally, physically and emotionally
abusive to her. The pursuer's evidence was supported by the affidavit of Anne Wilson to
whom the pursuer gave accounts of incidents that had taken place involving the defender.
Ms Wilson also witnessed the aftermath of some incidents.
[245]
In his affidavit and oral evidence the defender denied assaulting the pursuer. In his
oral evidence he was cross-examined about the circumstances in which he had instituted a
resolution to remove the pursuer as a director of Assynt Holdings Limited at a meeting to be
held at the home of his parents, and the knowledge of his parents as to the state of relations
between the parties. In the course of that passage of cross-examination he denied assaulting
the pursuer. In relation to the proposition that he had assaulted another person he was
warned that he need not give evidence that might indicate that he had committed an assault.
He said that there had been an incident he regretted, but in light of the warning did not
know what to do about answering further about it.
86
[246]
I accepted as credible and reliable the evidence of the pursuer and Ms Wilson and
rejected the defender's evidence so far as inconsistent with it, so far as the grounds for
divorce were concerned.
Extent of matrimonial property
The "Enterprise House" loan
[247]
The defender's case on record was that in March 2020 he and Mr Beard "committed
to make a ... loan to Enterprise House Limited". The defender had planned to use the funds
due to him from his personal loan to Zebra to fund the loan. He was unable to meet his
"loan commitment with Enterprise House Ltd" because repayment from Zebra was delayed.
In June 2020 Mr Beard agreed to fund the loan himself. He and the defender agreed that
on payment by Zebra, the defender would advance the sum of £500,000 to Mr Beard. He
therefore had a personal agreement with Mr Beard obliging him to pay Mr Beard £500,000.
After the defender paid Mr Beard £500,000, Mr Beard provided him "with the benefit from a
security in favour of Mr Beard over property held by St Cross Homes (Winchester) Limited",
a company that owed Mr Beard money.
[248]
The pursuer's case on record was that the defender had an interest in an investment
with Mr Beard relating to Enterprise House. She referred to the defender's "assertion" that
he had committed to a loan with Bradley Beard in Enterprise House before the relevant date.
She averred that in December 2020 the defender or Assynt undertook a new investment in
St Cross Homes (Winchester) Limited together with Mr Beard and called on him to produce
vouching in respect of his investment in Enterprise House and St Cross Homes (Winchester)
Limited.
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[249]
The defender's affidavit evidence was not entirely in accordance with his case on
record. That evidence was to the effect that in March 2020 the discussion was not about a
joint commitment by him and Mr Beard to lend money to Enterprise House, but, even that
stage, about a situation in which Mr Beard had already loaned money to Enterprise House,
and held a security in relation to that loan. The defender was to provide a loan to "reduce
the amount of [Mr Beard's] loan". The defender's affidavit evidence went on to narrate that
on 5 March 2020 he had committed himself to pay £500,000 "as a loan to Enterprise House",
whereas his case on record, and ultimately in his oral evidence, was that it was to Mr Beard
that he came to be obliged to advance money.
[250]
The correspondence from the defender's former solicitor in 15 February narrated that
Mr Beard agreed with the defender to fund "the whole loan to Enterprise House Limited ...
and did so."
[251]
There is no doubt that the loan by Mr Beard to Axis and secured over Enterprise
predated March 2020. That is apparent from 6/47 and 6/48 of process. A charge over
Enterprise House in favour of Mr Beard was created on 6 January 2017 as security for a loan
by him to Axis of £2m, which was due to be repaid on 6 January 2019.
[252]
It is curious that the case on record and the correspondence from the defender's
former solicitor suggest otherwise, although I attach relatively little weight to that. The
defender's central proposition both on record and at the conclusion of the evidence was
that by the relevant date he was obliged to pay Mr Beard £500,000. The effect of that was to
eliminate from the matrimonial property at the relevant date the defender's loan to Zebra.
His oral evidence was that he had advanced £500,000 in the expectation that it would be
repaid. I note that that is consistent with the description in the letter dated 2 June 2020 of
the advance as a loan. The defender said that he had been repaid the capital sum in 2022
88
or 2023. The pursuer argued that if there were such an obligation to provide a loan
of £500,000, it gave rise to a corresponding obligation on the part of Mr Beard to repay the
sum. On the defender's own evidence he had received the capital when St Cross Homes
(Winchester) Limited paid Mr Beard.
[253]
The defender's case, although he did not articulate it in precisely this way, must be
this. At the relevant date the defender had an obligation to pay Mr Beard £500,000, which
was a liability. As he had not yet paid the sum to Mr Beard on the relevant date, there was
not at that time a corresponding obligation on Mr Beard's part to make repayment. The
obvious and inevitable result of paying £500,000 as a loan is to give rise to a corresponding
obligation on the part of the borrower to make repayment of that loan, which, if in existence
at the relevant date, would be an asset forming part of the matrimonial property. Had I
found it established that on the relevant date the defender had an obligation to lend £500,000,
and that there was not yet a corresponding obligation on the part of the borrower to make
repayment, there would have been a question as to how to treat:
(a)
the obligation that later came into being to make repayment,
(b)
the circumstance that the source of funds for the loan was a matrimonial asset
in existence at the relevant date, namely the outstanding loan to Zebra; and
(c)
the circumstance that the defender had benefited since the relevant date from
the repayment of the loan.
[254]
I have, however, been unable to make a finding on the basis of the available evidence
that at the relevant date the defender was liable to pay Mr Beard £500,000.
[255]
The evidence about the "Enterprise House" loan is vague and unsatisfactory.
The defender was untroubled as to who the borrower was, and apparently unaware that
repayment of the loan by Mr Beard to Axis was already nearly a year overdue. He said he
89
was comforted by the prospect of receiving interest. The terms of the agreement between
the defender and Mr Beard are obscure. There was no agreement as to when the loan was
to be repaid. The letter of 1 June 2020 describes an "investment in the current ... loan held
by [Mr] Beard", and also refers to the advance itself as a loan. An investment in the current
loan might have suggested an assignation of part of Mr Beard's interest in the loan in
exchange for the sum of £500,000, rather than a loan to Mr Beard. Although the letter
referred to interest at 8% per year, which would suggest that Mr Beard, if the borrower,
would require to pay that, Mr Vanderhyde's evidence was that what was intended was
that the defender would receive interest only if Mr Beard received interest from Axis. If
that was indeed the arrangement, it would tend to undermine the assurance to which the
defender referred that he would receive interest.
[256]
The defender said he was unconcerned about Covid on 5 March 2020 when he said
he had made a bargain to provide £500,000, and that no restrictions were being indicated at
that time. At another point in his evidence he said that Last Mile had been considering the
impact of Covid on capex from February or March of 2020. He placed some emphasis in
his evidence on what he said was his reliance on the approach taken by Last Mile to the
pandemic and its consequences, and the information to which he was privy in his work at
Last Mile. It is on the face of matters odd that on the one hand Last Mile should have been
considering the impact of Covid in February or March of 2020, but that the defender should
have been unconcerned about it when, on his account, committing funds of £500,000 to
reduce Mr Beard's exposure in relation to a loan that was already overdue for repayment.
[257]
The manner of documenting the transaction spoken to by the defender and
Mr Vanderhyde was very informal, when compared with the documentation associated
with the loans provided by Assynt. It is an unusual instance of the defender's providing a
90
loan without receiving security at the time of the advance from the party to whom the
advance was provided. It is not obvious why St Cross Homes (Winchester) Limited should
have agreed to provide a security to the defender in relation to an advance of money by him
to another party.
[258]
The absence of evidence from Mr Beard about the transaction in question is a matter
of concern. He could have provided evidence as to the nature of this transaction and which
would have informed my consideration of whether and why there was any obligation
incumbent on the defender as at the relevant date to pay him the sum of £500,000. His
name appeared on the defender's list of witnesses but no affidavit from him was lodged.
The defender referred to the state of Mr Beard's health as an explanation for his
unwillingness to give evidence, but there was no medical certificate, or any application for
measures that might have permitted Mr Beard to give evidence other than in person in the
courtroom.
[259]
I am unable to make a finding as to whether and when any obligation on the
defender to pay money to Mr Beard may have come into existence. It may have been
contingent on his receipt of funds from Zebra. It appears he did not in fact pay anything
until he got those funds. It appears also from the letter of 1 June 2020 that any agreement
to provide funds was predicated on the defender's being provided with a security over
Enterprise House. He was not in fact provided with that security.
The balance in Bank of Scotland account xxx9468
[260]
The pursuer averred that the balance in this account was a gift to her from her
mother from the estate of her late father. Her evidence was that her father died in 2010
and that she received £50,000 in 2013 when her mother moved from the family home to a
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small flat. The source of the sum is not vouched. There is also some force in the defender's
submission that it should have been possible to obtain evidence from the pursuer's brother,
who was said also to have received a sum of money in 2013. It did not appear to be
disputed that the pursuer's mother had dementia and lived in residential accommodation.
I have, however accepted the evidence of the pursuer about this matter as credible and
reliable and concluded that the balance in this account was not matrimonial property. I
regarded her evidence generally as credible and reliable. In assessing her evidence about
this particular matter, I have also taken into account the following matters.
[261]
There was no dispute that after the death of the pursuer's father the pursuer's
mother sold what had been a family home, moved to a flat, was unhappy in the flat, and
thereafter moved to a bungalow. There was no dispute that funds were provided to the
pursuer's mother to help her move from the flat to the bungalow, although the defender
thought the sum was more than £9,500. His evidence was that the payment had not come
from his bank account, and he could not say whether it had come from a joint account. Had
the funds come from a joint account I would have expected the defender to know about it.
He took a close interest in the family's financial affairs and on his own evidence sat down
regularly with the pursuer to reconcile their finances. I consider that it is more likely than
not that the money came from the pursuer's personal account and that it was money that the
pursuer felt her mother should receive essentially because her mother found herself short of
money having made a generous gift to the pursuer.
[262]
Although the defender did not accept that the menage had been funded by money
deriving from the pursuer's father's estate, he did accept that other spending relating to
horses had been funded in that way. He also accepted that there was a plaque erected at
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the menage which read "G and G arena". He did not demur from the proposition that those
initials referred to the pursuer's parents.
[263]
The defender suggested that the sum derived either from repayment of a loan made
by the pursuer to her mother, or from savings that the pursuer had accrued without his
knowledge. Given the defender's close interest in the parties' finances and the regular
reconciliations of finances in which both parties were involved, it is unlikely that the
pursuer would have been in a position to do that without the defender's knowledge.
[264]
The defender averred that the balance on this account included repayment of a loan
made by the pursuer to her mother following the death of her father. It is unlikely that the
sum in this account derives from the repayment of a loan by her mother. On the defender's
own account, the "loan" was to be repaid on the death of the pursuer's mother, or the sale
of her home, and neither event has yet occurred. It is not obvious from what funds the
pursuer's mother would have repaid such a loan. Although there was a dispute as to how
much was provided to her, both parties spoke to payment made to fund a shortfall when
she was buying a house.
[265]
I consider it unlikely that these parties, who are both accountants, would have made
a loan of this sort without some document to substantiate it. To do so would risk difficulties
after the death of the pursuer's mother so far as there would be an undocumented debt said
to be due from her estate requiring to be paid out before division of the estate. I did not
accept as credible and reliable the defender's account in evidence that he and the pursuer
loaned between £20,000 and £25,000 for this purpose and on the agreed basis that it would
be repaid before division of the pursuer's mother's estate.
[266]
The defender did not advance any separate positive case that there was a loan by
the pursuer to her mother which was an asset in existence at the relevant date.
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Value of matrimonial property
Contents of the matrimonial home
[267]
There is no professional valuation of the contents of the matrimonial home. The
pursuer estimated the values of the internal and external contents at respectively £12,250
and £6,300 and said that the defender had retained them. While I am not in a position on the
basis of the evidence to make detailed findings as to how the contents were divided, I accept
in general terms that the defender retained more than the pursuer did, and retained most of
the contents. The schedule for sale shows a furnished house. The photographs taken by the
pursuer in April 2021 show a largely empty house. The pursuer retained china and crystal.
The defender appeared to accept he had retained a number of items, and that he had kept
items in storage until May 2022. He said he had not been able to sell the furniture, which
implies an acceptance that he had retained it.
[268]
The pursuer's estimates were based on discounting the replacement costs of
furniture by 50%. It was not clear on what basis she estimated the values of the trailer
and lawnmower.
[269]
The contents internal and external will have had some value, and I am satisfied that
the defender retained by far the greater proportion of the property. The pursuer retained
some china and glassware which are likely to have been of modest value. I can deal with
matters only on a very broad basis. I have assessed the value of the contents, internal and
external as £15,000, which involves discounting further the replacement values spoken to
by the pursuer. I have proceeded on the basis that items retained by the pursuer were worth
no more than £500 and that the defender retained the remainder.
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Boat and trailer
[270]
The pursuer valued these items at £14,000 and said they had been retained by the
defender. In submissions senior counsel for the defender valued them at £10,000 and
characterised them as jointly held. The defender's oral evidence was that the boat was
worth about £10,000 and the horse trailer worth £1,000 to £2,000.
[271]
I am satisfied that the boat is worth about £10,000. There did not appear to be a
material difference between the parties on that matter. Neither party wished to retain the
boat.
[272]
The insurance value of the horse trailer was said to be £4,000. I am not satisfied that
that represents its market value at the relevant date, and on a broad basis value it at £2,000.
I treat it as having been retained by the defender, as his own evidence was that he removed
it from where the pursuer had left it and gave it away.
Bank balances
NS&I accounts xxx7741 and xxx7221
[273]
The pursuer said the relevant date balance on joint account xxx7741 was £935, and
the defender said it was £833. The dispute is in relation to the interest on the account. The
account attracted interest annually which was applied on 1 April 2021. It is true that the
relevant date balance of the account was £832.99, and that capitalised interest was applied
on 1 April 2021. That balance was what was left after the defender removed £25,000 from
the account on 28 August 2020. On 29 August he removed a further £830, leaving a balance
of £2.99. It is evident that the interest applied on 1 April 2021 derived entirely from the
sums held in the account up to, but not after the relevant date. I treat the relevant date
95
balance as £935.00, which is the sum reported by NS&I as the value of the investment on
the relevant date.
[274]
It is not in dispute that the defender retained £830 of the balance. It is not clear on
the evidence what happened to the remaining £105. I have treated it as having been retained
in equal shares by each of the parties.
[275]
The nature of the dispute was similar so far as the defender's account xxx7721 was
concerned, with the competing figures being £25,701 and £25,508. Of that balance £25,000
is the sum which the defender removed from account xxx7741. NS&I reported the value of
the investment on the relevant date as being £25,701 and it is evident that in doing so the
institution apportioned interest. I see no reason to do otherwise.
Joint RBS accounts xxx3939 and xxx5459
[276]
By the time of submissions there was no dispute that the balances on these accounts
were £8,461 and £7,369. There was no dispute that the pursuer and the defender retained,
respectively, £480 and £7,981 in respect of account xxx3939 and that the defender retained
the whole balance of £7,369 on account xxx5459. The dispute as regards the sums retained
by the defender had arisen because of various transactions on those accounts close to the
relevant date.
Cars
[277]
In relation to the Audi, I accept the evidence of Mr Bathgate. He carried out a
conventional valuation by reference to Glass's guide, and picked a value in the middle of
the range. I do not consider that the value placed on the vehicle in relation to a commercial
96
part-exchange deal more than a year after the relevant date is a reliable indication of its
market value at the relevant date, or that it undermines Mr Bathgate's valuation.
[278]
Valuing a bespoke converted vehicle such as the Land Rover is not straightforward,
and it is understandable that Mr Bathgate should have had regard to cost to the defender of
obtaining and modifying the vehicle. I accept that it appeared to have been modified and
renovated extensively and to a high standard. I do not accept, however, that that provides
a reliable basis for assessing the market value of the car at the relevant date. Mr Bathgate
accepted in his evidence that he had assessed the value of the vehicle to a special purchaser,
rather than on the open market. It may be correct, as he said, that even specialist
publications did not feature vehicles with exactly the same modifications as the car in
question, and that they would not necessarily show the eventual price paid for the item.
The absence of an exact comparator is not usually a bar to the consideration of comparators
in other areas of property valuation. What the valuer does is consider the similarities and
differences between the subject of valuation and the comparators and provide a rationale
for assessing the subject in the light of the information about the comparators. Having
acknowledged the existence of a market for modified Land Rovers and of specialist
publications offering them for sale, I should have expected some evidence about comparator
vehicles and the prices at which they were offered for sale, and specialist assessment of the
ways in which the subject vehicle was similar to or different from them.
[279]
Notwithstanding the valuation of £9,000 to £12,000 provided in writing by Mr Lea
and referred to and relied on by the defender at paragraph 35 of his affidavit, the value
offered by the defender for the purposes of submissions was £50,000. I have indicated that I
do not accept Mr Bathgate's valuation as representing the open market value of the vehicle,
97
and the figure of £50,000 appears, on a broad basis, to be reasonable having regard to the
extent, cost and apparent quality of the modifications to it.
Drinks Warehouse
[280]
I am not satisfied that the defender's shares in Drinks Warehouse had any value at
the relevant date. Mr Rowand accepted that he did not have sufficient information to place
any value on what he described as hope value, which could lie in the range zero to £50,000.
There is no basis at all in the evidence, even if one accepted the proposition that there might
be a "hope" value, for locating it at any particular point in that range. Although there had
been "real world" transactions in shares in Drinks Warehouse in 2020 and 2022 there is no
evidence about those transactions.
Assynt
[281]
I have considered the defender's decision to write down the value of the loans to
EKO and Radley in the context of other actions that I am satisfied he took on or very shortly
after the relevant date and that he has taken since the relevant date. I have formed the view
that the evidence demonstrates that he has acted consistently in such a way as deliberately
to try to disadvantage the pursuer, and to defeat her legitimate claims for financial
provision. The decision to write down the loans, and the extent to which to write them
down was his alone.
[282]
He changed the locks on the matrimonial home. The pursuer did not have access
to it until April 2021. It was not reasonable for him to expect her to accept that she should
access it only with his permission and in a context in which he had fitted CCTV cameras. It
98
was her property as well as his. She did not get access to the property until 27 April 2021, by
which time the defender had removed most of the contents.
[283]
The defender removed the pursuer's horse trailer from the farm where she had left it.
He did so without her permission. I accept the pursuer's evidence that he told her that he
had done so because she had not left any items of clothing for him to destroy. He disposed
of it without her permission. I infer that he did so spitefully and that he intended to deprive
her of the horse trailer in the knowledge that she wished to keep it.
[284]
The defender moved a number of sums of money from joint accounts to accounts in
his sole name on or shortly after the relevant date. His oral evidence was that the first thing
he did when he found the pursuer had left was to check the NS&I accounts, including those
in the pursuer's sole name.
[285]
The defender had accounts prepared for Assynt very shortly after the relevant date.
On 2 September 2020 he engaged accountants to prepare the accounts to 31 August 2020.
Those accounts included revaluations of the loans to EKO and Radley involving writing
them down to the extent of 90% and 80% respectively.
[286]
There was no pressing need to extend the year end, or to sign off the accounts. The
company still had, at that point, more than 6 months to complete its accounts, by virtue of
the extended period available in the context of the pandemic. With the extended year end
upon which he decided, it had until 31 August 2021 to do so. There was no obvious
imperative for the speed with which the defender proceeded to instruct the making up of
the accounts and to sign them off, other than the defender's desire to create evidence of very
markedly diminished matrimonial assets as at a date only 3 days after the relevant date.
[287]
On 6 September 2020 the defender asked the pursuer to resign as director. He made
the same request by email the next day. On 17 September 2020 the pursuer received
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notification of a SGM to be held at the home of the defender's parents and a notice of
resolution seeking her removal from office as a director. The SGM was held on 16 October
at the home of the defender's parents, and the pursuer's directorship was terminated with
immediate effect. On 28 September 2020 the defender extended the company's accounting
period from 31 March 2020 to 31 August 2020. During September 2020 he also issued an
allotment of share capital which increased his shareholding from 75% to 98%, thereby
preventing the minority shareholders from seeking an independent audit of the accounts in
the future.
[288]
Section 476 of the Companies Act 2006 provides:
"(1)
The members of a company that would otherwise be entitled to exemption
from audit under any of the provisions mentioned in section 475(1)(a) may
by notice under this section require it to obtain an audit of its accounts for a
financial year.
(2)
The notice must be given by
(a)
Members representing not less in total than 10% in nominal value
of the company's issued share capital or any class of it, [...]
(3)
The notice may not be given before the financial year to which it relates and
must be given not later than one month before the end of that year."
[289]
By changing the year end and increasing his shareholding the defender prevented
the minority shareholders both from timeously giving notice in relation to what they would
otherwise have expected to be the accounting period including the relevant date (ie 1 April
2020 to 31 March 2021) and prevented them from requiring an audit in future years.
[290]
By the time the defender signed the accounts on 29 October 2020, he had already
secured the termination of her directorship.
[291]
The 12 August document was said to record the thinking of the defender as at that
date in 2020. It includes, unacknowledged, text identical to that in an article in the UK
Politics section of "The Financial Times". The defender did not volunteer that he was not
100
the original author of the text. He did not acknowledge that, or acknowledge a source for
it in the body of the document. An obvious inference, and the one that I have drawn, is
that the defender cut and pasted the passage of text into the document. I do not accept that
the document is a genuine and contemporaneous record of the defender's thinking as at
12 August 2020, informed, as he claimed, principally by reports he had seen when working
for Last Mile. Viewed in the context of the evidence as a whole, and in particular the matters
to which I refer in the foregoing paragraphs, the 12 August document is more likely than not
one confected for the purpose of these proceedings to attempt to justify in retrospect the
decision to write down the loans. According to the defender, RSM accountants asked him
to prepare the document. Mr Stupart of that firm was on the defender's list of witnesses but
did not give evidence. On the defender's account of matters his former accountants would
have been in a position to support his account of the circumstances in which the document
came to be prepared. I draw an inference negative to the credibility and reliability of the
defender from the fact that he did not lead evidence from Mr Stupart.
[292]
I noted that the defender's agent, on his behalf, represented on 18 January 2023
that the defender did not have any notes "between Assynt ... and RSM in connection to
the recoverability of the loan advances [to] EKO". I do, however, accept the evidence of
Mr Robb that he had the 12 August document at the time he prepared his report. His
report was lodged on 11 January 2023, and I conclude that the 12 August document was
in existence before that date. On Mr Robb's evidence, the 12 August document was not
provided to him initially, but when he asked for more information about the loans.
[293]
There is no rationale in the 12 August document for the particular percentages by
which the defender elected to write down the value of the loans. There is no explanation
as to why one is impaired to a greater extent than the other. The consideration of the
101
individual loans in the document is extremely brief. The defender accepted that he did not
take into account the terms of the loan agreements. The terms of Clause 5 of the agreement
with EKO is plainly of potential relevance. There was no valuation of either site, or site
inspections. There was no reference to the work done on either site, or the stage of
completion. There was no reference to the valuation of the EKO site at the point at which
the loan had been made, which on Mr Vanderhyde's evidence had been between £1.5m
and £1.7m. There was no rationale for the decisions about the extent of impairment of each
loan advanced in the defender's evidence. Such justification as he provided was only in the
most general terms.
[294]
Within only a few weeks of the relevant date the defender had by his unilateral
assessment of the value of the loans written down very substantially the relevant date value
of the most significant matrimonial assets.
[295]
No basis for writing down the loans to the extent of 80% and 90% respectively
emerged in the evidence. Such information as there is about the particular developments
is contained in the emails from Mr Fooks and Mr Orman from August and July 2022. Those
emails were written nearly 2 years after the relevant date in response to a request, the terms
of which were not disclosed, from Mr Vanderhyde. They were supplied to Mr Robb when
he asked for more information about the loans. I infer that Mr Vanderhyde requested
information from Mr Fooks and Mr Orman for the purposes of these proceedings. No
contemporaneous documentation regarding the developments or any particular issues
with their progress was produced, other than photographs of the EKO site said to have
been taken in summer 2020. It is not clear who took them. Mr Vanderhyde's evidence that
he did is not consistent with the contents of his covering email to the defender sending on
Mr Orman's email. Mr Vanderhyde provided oral evidence that the issues disclosed in
102
those two emails accorded with his personal knowledge and understanding. He visited the
Radley site only at the very beginning of the project, although he visited the EKO site on a
number of occasions. His evidence was not supported by any contemporaneous notes or
records taken or kept by him relating to the period up to the relevant date.
[296]
I accept in general terms that the Covid pandemic caused delay and difficulties in
relation to the supply of labour, at least between 20 March and 10 May 2020, and in relation
to the supply of materials thereafter.
[297]
Taking the contents of Mr Orman's email at face value, the EKO project was delayed
and the budget increased by the relevant date because of the pandemic. His email does
not specify at what date a disagreement emerged between the developers. The difficulties
he lists about building control and the roof post-date the relevant date. The defender
through Assynt made a further advance to EKO of £73,110 on 18 September 2020. I can
accept that there is a dilemma for a lender who may perceive that a project is in difficulties
as to whether to advance more funds. He may on the one hand be throwing good money
after bad, but on the other hand may be assisting the developer in a way that will enhance
the prospect of his recovering the loan in due course. In this case, however, there was
certainly no obligation on Assynt to make a further advance in circumstances where
the terms of the loan agreement regarding further advances had not been complied with.
Assynt did so without insisting on any of the measures open to it to protect its interests
in terms of Clause 5 of the loan agreement. That tends to undermine the notion that the
defender had a genuine basis for writing down the loan to the extent that he did in the
accounts. Mr Vanderhyde's evidence was that he recommended to the defender that he
should make further advances when he, Mr Vanderhyde, had observed progress on the
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site. That would tend to suggest that some discernible progress had taken place by
September 2020.
[298]
Looking at Mr Fooks's email regarding Radley, only a limited number of entries
relate to the period between the advance (27 January 2020) and the relevant date. The email
says that all work stopped for an archaeological dig assessment on 21 February 2020. The
next mention of attendance by archaeologists is on 12 April 2021, but it is implicit that
work was going on between those two dates, as the email mentions, without any particular
specification, labour shortages and supplier issues between March and September 2020, and
the placing of an order for lifts.
[299]
I am unable to make any finding as to the extent to which Mr Beard may have
provided funds for further advances to EKO. The defender said that he had
provided £326,000 to prevent Assynt from being in default. It is not clear on what basis
Assynt would have been in default in the absence of compliance by EKO with the
requirements of Clause 5 of the loan agreement. If there were a further advance of £326,000
then the total advanced to EKO would have been £1,146,859, which exceeded the agreed
facility of £1,059,000. There is no vouching for the sum of £326,000. It is not recorded as a
loan to Assynt in Assynt's accounts. Senior counsel for the defender objected to questions
concerning the absence of reference to such a loan in the accounts. I allowed the line subject
to competency and relevancy, and senior counsel renewed the objection in submissions. He
said that the premise that there was a loan by Mr Beard to Assynt had not been established
on a fair reading of the defender's oral and affidavit evidence. I repel that objection. Unless
the sum advanced by Mr Beard which was said to have been advanced in order to fulfil
Assynt's obligations were intended as a gift to Assynt, it is difficult to see what else it might
be than a loan. To suggest that it might have been a loan, and, that, if it were, it should have
104
been accounted for in some way in Assynt's financial statements, are legitimate and logical
lines of inquiry so far as the pursuer is concerned, and arise from the defender's evidence
about the advance.
[300]
A number of matters arise from the accounts post-dating the relevant date. Even
assuming in the defender's favour that the errors in the accounts for 2021 regarding the
treatment of the advance of £220,000 to Radley were simply the result of inadvertence, those
errors would call into question the reliability of the financial statements prepared for Assynt.
The accountants who prepared the accounts have not given evidence. Repeated inadvertent
inaccuracies are all the more surprising given that the defender is himself a chartered
accountant who worked as the chief financial officer of Last Mile. The pursuer identified the
inaccuracies herself without the assistance of a forensic accountant. Looked at in the context
of all the evidence, however, I am not prepared to accept that the errors were the result of
inadvertence. The matters I regard as relevant to that assessment are the following.
(a)
The defender instructed repayment of £220,000 to a personal HSBC account
held by the defender and Ms Williams, at a time when payments in and out
of Assynt's account were operating satisfactorily. There is correspondence
from the Bank of Scotland relating to difficulties with the Assynt account, but
it concerns a period after the time at which the £220,000 was repaid. I accept
that correspondence from the bank probably did go unanswered because the
address had not been changed, but the correspondence in question was a
notice of intention to close the account sent out in September 2022. The
correspondence also vouches difficulties with logging in, although it is not
clear when those occurred. It is clear, however, that Assynt's account was
able to send and receive money in April 2021. Sums of money were paid
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into it to achieve a balance of about £220,000 in the early days of that month,
and that sum was paid out to Radley on 12 April 2021. The activity on the
account is inconsistent with the proposition that it was incapable of receiving
the sum of £220,000 between 12 and 20 April 2021, when the sum was paid
into the HSBC account.
(b)
The defender's affidavit evidence as to the source of funds for his house
purchase is misleading and incomplete. It suggests that the source was a
NS&I account, whereas, as he admitted in oral evidence, some of the funds
derived from the HSBC account.
(c)
The accounts not only failed to reflect the repayment of £220,000, but also
wrote down the value of the advance of £220,000.
I infer that the defender wished to conceal the fact that he had received the sum of £220,000
from Radley, but not the fact that Assynt had made a payment of £220,000 to Radley. Not
only were the accounts inaccurate in this respect, but so was a spreadsheet prepared by the
defender for the purposes of these proceedings, and produced as 7/43 of process.
[301]
The failure in the 2022 accounts to reverse the impairment of the EKO loan is also
very difficult to explain. The defender signed off the accounts on 11 March 2023 after
having discharged the security for the debt in question. I find that he knew by 11 March
that the loan was going to be repaid in full, and that the way the loan was treated in the 2022
reflected deliberately misleading information that he provided to the accountants who
prepared those accounts. I infer that he wished to maintain the impression in March 2023
that the EKO loan was without value to Assynt. A proof in this case was due to be heard on
7 March 2023 and was discharged on the pursuer's motion on 22 February 2023.
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[302]
Although the defender at one stage during cross-examination said that he had not
received repayment of any part of his director's loan, he accepted that Assynt's bank account
statements disclosed on 1 April 2022 a payment in from Radley of £138,352.50, a payment
out to his own personal account of £5,000 with the reference "Loancap Rad". On 4 April
2022 there was another payment to him with the same reference of £79,014.50. He also
accepted that he had received just over £132,000 by way of repayment of his director's loan
and that that was disclosed in the 2022 accounts.
[303]
The evidence about the purported agreement with Radley that payment should be
deferred until all the apartments was sold was unsatisfactory. By the close of the proof a
substantial payment had in fact been made, although it appeared from Mr Vanderhyde's
evidence that one apartment remained on the market. There was no evidence of any direct
communication with the borrower about this arrangement, or any documentation produced
to vouch it. Notwithstanding the defender's professed satisfaction with the prospect of
interest accruing, an arrangement of the sort described gave rise to risk to the lender. It
involved discharging securities over most of the development before any capital was paid
back, and to an extent that the remaining security would have been very significantly
diminished. Mr Vanderhyde said that there was a personal guarantee from the director of
the borrower, but again, that was unvouched.
[304]
I have concluded that there was no proper basis for the defender's decision to write
down the loans to EKO and Radley to the extent of 80% and 90% and that he did so with a
deliberate view to eliminating a significant matrimonial asset from the fund available for
division.
[305]
The evidence of Mr Vanderhyde provided very limited support for that of the
defender, and notably did not include any view of his own, based on his knowledge of the
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developments in question, as to whether the loans ought to have been written down, or by
how much. Mr Robb's opinion was based on the very limited information with which he
was provided, and in particular the assertions of the defender - which I have rejected - about
the basis for writing down the loans. He acknowledged that a number of the factors that I
have found to be significant and of which he was unaware were matters in which he would
have been interested as potentially significant where the person writing down the loans
might be perceived as having a financial interest in doing so.
[306]
I have therefore disregarded the writing down of the EKO and Radley Loans and
have included the director's loan at full value, namely £2,276,536.
[307]
Senior counsel for the pursuer submitted that I ought to include a value of £8,088
for her shares in Assynt, and a value of £86,657 for the defender's shares. In her affidavit
the pursuer said that the value of her shareholding should be assessed by reference to her
share of the value of the interest owed on the loans made by Assynt. She said that that
interest amounted to £148,055, and which would have generated a net profit of £115,542
after tax. In her evidence she said that she would be entitled to 41% of that figure. That
was incorrect, as she was a 7% shareholder at the relevant date. In cross-examination the
pursuer's evidence was challenged in relation to that inaccuracy. It was also challenged on
the basis that she had taken the loans at full value, rather than written down. Her reasoning
and methodology were not otherwise challenged, and I have accepted her evidence subject
to apportioning in accordance with the parties' actual shareholdings.
Division of matrimonial property
[308]
The pursuer did not suggest that any departure from equal sharing was necessary in
order to achieve fair sharing, on the hypothesis that the relevant date value of the defender's
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director's loan account was that for which she contended. I am satisfied that that is the
correct approach in this case.
[309]
The only suggested departure from equal sharing advanced in submissions was
to the extent of recognising, to the extent of £15,000 that the pursuer had derived economic
advantage from the defender's assistance when she was starting her own business. I can
accept that the parties had conversations and discussions about the pursuer's business.
It would be odd if they did not, as they were both accountants. I accept also that their
respective skills and experience within the accountancy profession were different. There is
no reason to doubt that each benefited from the conversation of the other in that respect.
The evidence does not support a conclusion that there was anything more significant than
conversations and discussions about topics of mutual interest between a couple who shared
a profession but pursued different areas of practice within it. I am not satisfied that the
pursuer derived any particular economic advantage from conversations with the defender
about her business, although they may well have been professionally helpful.
[310]
Had I been satisfied that there was no value attributable to the defender's director's
loan account with Assynt at the relevant date, I would have had to consider the pursuer's
submission that there would require to be a departure from equal sharing to recognise the
economic advantage derived by the defender from the efforts of the pursuer. There was
no dispute that the funds that Assynt invested in the loans with EKO and Radley derived
directly from the economic efforts of the defender. He made a substantial amount of money
working away from home over many years, and that generated funds for investment. His
work away from home was directly facilitated by the pursuer. While she continued to work
at least part-time during the marriage, she set up her own business only at a relatively late
stage.
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[311]
I am satisfied that the pursuer was in a position where a career broadly similar to
that of Ms Dickson would have been available to her. Ms Dickson's position and that of
the pursuer were reasonably similar at the point before the pursuer took a career break.
It is impossible to know precisely what career path the pursuer would have taken had she
remained with Ernst and Young, but is more likely than not that she would by now have
been in a position to earn a salary in excess of £100,000 per year.
[312]
There was a dispute between the parties as to whether the pursuer was or was not
willing to work full-time at various points during the marriage, or whether she was willing
to relocate to Essex. What in fact happened was that the defender spent protracted periods
working away in the south of England, far from the family home. That would have been
materially more difficult had the pursuer not been at home and working, as she did for
many years, in a part-time role. If she had worked full-time there would no doubt have
been additional costs by way of childcare to enable both parties to work full-time. It may be
true that the pursuer wished to spend time with her children when they were young, rather
than employing a nanny. I am satisfied that when it became established that the defender's
work was away from home for long periods the ability of the pursuer to maximise her
earning potential was limited in practical terms. I accept the pursuer's account that it was
the desire of the defender to adopt the working patterns that he did. I reject his evidence to
the contrary effect.
[313]
A departure from equal sharing would have been necessary in order to achieve fair
sharing in the event that the relevant date value of the director's loan had been nil. That
is because the funds for the loans came from the economic efforts of the parties, and the
defender has, ultimately benefited from the fruits of those loans. They have been repaid. I
do not require to address the question of whether that is a matter that should be recognised
110
in the context of arguments under section 9(1)(b) or whether it would be better characterised
as a special circumstance.
Resources
[314]
By the stage of submissions, counsel for the defender advanced no submission that
the resources of the defender limited his ability to pay a capital sum. He did so having
recognised that Radley had repaid more than £1.4m in February 2024.
Interest
[315]
Amongst the incidental orders that the court may make before, on or after granting
or refusing decree of divorce is an order as to the date from which any interest on any
amount awarded shall run: section 14(1), (2)(g). The court has a discretion to award interest
from a date prior to the date of decree: Geddes v Geddes 1993 SLT 494. An award of interest
is not compensation for wrongfully withholding the principal sum, but is to facilitate the fair
sharing of the matrimonial property, and must be justified by the principles in section 9.
The circumstances in which it might be appropriate to award interest from a date prior to
decree include those where one party has had sole use or possession of the property since
the relevant date or where the use or benefit has resulted in a benefit not otherwise included
in the calculation of the financial provision.
[316]
The matrimonial property invested in the EKO and Radley loans was accounted for
by a director's loan to Assynt in the sole name of the defender. The EKO loan has been
repaid with interest, and much of the capital has been repaid so far as the Radley Loan is
concerned. It is likely that the defender will now also receive interest on that loan in due
course. The rate of interest on each loan was 9% per year. It is unlikely that the pursuer will
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benefit from the use of the matrimonial property in that way by virtue of her shareholding
in Assynt. She had only an interest of 7% before the defender increased his own
shareholding from 75% to 98%.
[317]
Since the relevant date the defender's investments have been made as loans by him
personally, rather than through Assynt. On his own account those loans totalled £2,048,196.
There is no vouching as to the terms on which those loans were made. The defender's
evidence is that the funds for those loans came from the proceeds of his shares in Last Mile,
shares which themselves were matrimonial property, although worth much less at the
relevant date than at the time the defender realised his interest in them.
[318]
I am satisfied that the pursuer should receive an award of interest on one half of
the value of the loans by Assynt to EKO at the relevant date, plus one half of the £73,119
advanced to EKO in September 2020, as the source of funds for that advance were
matrimonial property that remained under the control of the defender. The loans generated
interest. Although the defender retained other matrimonial property, to award interest on
the whole of the £2,121,625 to which I have found the pursuer entitled as a balancing
payment, would involve a measure of compensation for the absence of payment at an earlier
date, which is not the purpose of interest under section 14(1) and (2)(j).
[319]
Both senior counsel recognised that further submissions would be required as to
the period over which interest, if awarded, should run. One factor that may be relevant is
the discharge of a proof on the pursuer's motion. The issue of expenses for that diet remains
outstanding. Questions as to whether the rate of interest ought to be modified for all or part
of the period from the date of service of the summons may also arise.
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Disposal
[320]
The case will call by order for discussion of the precise terms of the interlocutor I
should pronounce, the period over which interest should run, whether any modification of
the rate of interest should be applied in respect of all or part of the period in question, and
outstanding questions of expenses.
