Scottish Sheriff Court Decisions

A345/07

SHERIFFDOM OF TAYSIDE, CENTRAL AND FIFE AT CUPAR

JUDGEMENT OF

SHERIFF G J EVANS

in causa

INLAND BUILDERS (SCOTLAND) LIMITED (In Liquidation)

having its Registered Office at

c/o Hastings & Co, Chartered Accountants, 82 Mitchell Street, Glasgow, G1 3NA

PURSUERS

against

 

MRS ANN McCONNACHIE

residing at Percy Baldinnie Farm, Ceres, Cupar, Fife, KY15 5LD

DEFENDER

 

CUPAR, 6 August 2009. The Sheriff, having heard parties' procurators in debate, excludes from probation as irrelevant the defender's case for non-payment based on delegation of her liability to her husband Roy McConnachie as averred in answer 3 of the Closed Record, No 19 of Process; quoad ultra Allows parties a Proof Before Answer of their respective averments to be hereinafter assigned and Fixes 21 August 2009 at 10.00am as a hearing on expenses.

 

 

 

 

Sheriff

 

NOTE:

 

Introduction and Background

 

This was a debate on the pursuers' preliminary plea to relevancy and specification in the Record, No 19 of Process. Mr Young, Solicitor, Glasgow appeared for the pursuers and Mr Ralston, Solicitor, Paisley for the defender. The action itself is brought by a company in liquidation against an individual as a director of the company in respect of the demand by the liquidator for what is claimed to be due for repayment of a director's loan by this person of £198,549.73, being the sum sued for. There are differences between the parties as to how the amount of claimed indebtedness should be calculated but that was not a matter that featured at the debate. The averments that by and large featured at the debate and were the subject of attack by Mr Young are to be found in answer 3 of the Record and read as follows:-

 

"Explained and averred that the defender held office in name and form only. The defender's husband Mr Roy McConnachie who was sequestrated was the previous director of the company. The business was run by Roy McConnachie. Following his sequestration Roy McConnachie continued to run the business and to take decisions. The defender acted as a director and carried out the duties required of a director only as she was instructed to do by Roy McConnachie. The defender had no independent role in the company ..."

 

"... on 1^st March 2005 Mr Roy McConnachie, the defender's husband, became the sole director of the company. ..."

 

"... there was in reality no loan to the defender and she did not withdraw money from the company for her personal benefit ..."

 

"... esto there was a legitimate director's loan at 28 February 2005 of £227,589.59 (which is denied) Roy McConnachie became responsible for it as of 1^st March 2005."

 

"... Roy McConnachie assumed the liability of and responsibility for the outstanding directors when he was assumed as a director on 1^st March 2005. The said Roy McConnachie did so as he regarded the business as his own, had continued to direct the business while the defender was a director, because the defender was Roy McConnachie's wife, and since the business was at that time busy and profitable. Said Roy McConnachie took over the outstanding director's loan at the date of the defender's resignation as a director for love favour and affection. Explained and averred that the defender was a director of the company to enable the business to continue to trade while the said Roy McConnachie was sequestrated and thereby precluded from holding office as a director. The arrangement entered into by Roy McConnachie was discussed and agreed with the company's accountants who reflected the arrangement in the Books and Accounts of the Company. Accordingly, any debt then due by the defender was assumed by Roy McConnachie, and extinguished quoad the defender. The company accountants, Johnston and Carmichael, treated the director's loan account in a manner consistent with the transfer of the director's loan account to Roy McConnachie, the incoming director. There is no debt due by the defender to the pursuers."

 

Submissions for Pursuers

 

Mr Young referred me first to No 15 of Process, ie the pursuers' Rule 22 Note justifying a debate. The first part in the Note made the point that the defender's averments about holding office in name and form only were not relevant to what was still due to the company from the director's loan account. The second point in the Note was the most important one for the pursuers, dealing with the defender's averments of how her husband took over her director's loan when he was assumed as director on 1^st March 2005. As the Note stated:-

 

"These averments appear to suggest that Roy McConnachie "took over" the defender's liability for her director's loan as at the date of her cessation in office as a director. The pursuers are entitled to further specification of any such (highly unusual) arrangement such as whether it was committed to formal writing in what form (eg by way of Minute of Agreement, Assignation, Guarantee), the consideration therefore (if any) etc. The words "took over" and "assumed" lacked specification as the manner of any such transfer and its documentation. The averments as they stand should not be allowed to proceed to probation as they do not provide to the pursuers fair notice of the nature of the alleged transaction."

 

These comments were amplified in the supplementary note as follows:-

 

"The defender's averments and alleged assumption by Mr Roy McConnachie of the defender's director's loan remain lacking in specification. The defender's aver that "the arrangement entered into by Roy McConnachie was discussed and agreed with the company's accountants who reflected the arrangement in the Books and Accounts of the Company. These averments lack specification as the individuals with whom the "arrangement" was "discussed and agreed" and precisely how the "arrangement" was reflected in the Books and Accounts of the Company."

 

It appeared from the defender's authorities cited for the Debate that she was contending that there had been a delegation of the debt to her husband, thereby extinguishing her liability for it. She had no plea-in-law to that effect nor was it specifically stated in the pleadings. She gave notice in her plea-in-law, No 4, that the sum was not due and resting owing to the pursuers by her in general terms but there was no specific plea-in-law dealing with delegation. The pursuers were also left in the dark about when the arrangement had been decided, how it had been implemented and when and how did the company consent to the delegation from one debtor to the other. There had to be consent from the creditor before delegation could be effected and, while delegation could be inferred from the circumstances, there was a presumption against it (a particularly strong one in the instant case) and the defender had not averred enough to spell out the circumstances from which delegation might be inferred and the presumption overcome. Mr Young took me through the various authorities in the defender's list.

 

(i)                  Dudgeon v Reid (1829) 7S729 which held that although a first party could assign to a third party their claim against a second party, the first party could not, without the second party's consent, substitute the third party in place of the first party with reference to that second party's claims against the first party. As the rubric stated "a party under an obligation to another (is) not entitled to delegate that to a third party without consent of the creditor".

(ii)                Hunter v Falconer (1835) 13S252. A father who had conveyed properties to his son agreed with the son's factor that he (ie the father) would be responsible for the cost of certain extraordinary repairs to the property while the son remained responsible for the cost of ordinary repairs. By the time the factor came to invoice the father for the extraordinary repairs, he was no longer in any financial position to meet those extra costs so the factor set the sums off against the rents received on behalf of the son. The son sued for the full amount of the rents and the factor pled his right to set off the cost of the extraordinary repairs. It was held that he had no such right as the indebtedness for the cost of the repairs had been effectively delegated from the son to the father, thus extinguishing the son's liability for them. The case showed that there had to be facts and circumstances from which such delegation could be implied.

(iii)               Fox v Anderson (1849) 11D1194. A ship owner's broker, on looking for settlement of the premiums on a vessel's insurance, sought satisfaction from the ship owner's brother, at the wishes of the ship owner, by debiting the amount in the brother's accounts while he also sought payment direct from the ship owner. It was held that notwithstanding the statement of accounts between the broker and the ship owner's brother, delegatio debiti was not to be presumed without strong evidence and without such evidence the original employer, the ship owner continued liable for the premium. In the instant case there was merely mention made of Roy McConnachie having taken over the loan "for love favour and affection" and the debt "assumed" by him. There was no specification of him having taken over the loan in its entirety or of him having discharged the defender.

(iv)              MacIntosh v Ainslie (1872) 10M304. Because of the way the employer's factor had dealt with the contractor's invoices, they had not been paid in full despite the employer having put the factor into funds with the intention that they be paid. Instead of cash they received promissory notes and bills from the factor that were not honoured in full when presented. The contractor sued the employer who argued that, by accepting the bills and notes instead of cash, the contractor had taken the factor as their sole debtor and had discharged the employer of the remaining extent of the bills. I was directed to the dicta of the Lord Ordinary at page 306:-

 

"In substance the defender's plea is, that the acceptance of Mr McLennan's bills amounted to delegation, that is, to the substitution of Mr McLennan as the full and only debtor instead of the defender, and to the entire and final discharge of the defender. Now, delegation is never to be presumed; in dubio, a new obligant will be held as corroborative of the original obligant, and not as being substituted for him. Even novation, which is a mere change of obligation, - the obligant remaining the same, - is never presumed, and there is a still stronger presumption against delegation, which requires more elements to complete, and to instruct it."

 

I was also directed to the dicta of the Lord President at pages 309 and 310 as follows:-

 

"It is laid down by all the authorities that delegation is not to be presumed, and I think the doctrine even goes further, and that there is a strong presumption against it."

 

"I do not think the parties could drift unconsciously into delegation; but their intention must be clear and plain, or the law cannot give effect to it; and the single circumstance of the erroneous statement contained in this letter of 6 July appears to me to be sole entirely outweighed by the other evidence in the case that I am unable to regard it of any importance."

 

I was also referred to the dicta of Lord Kinloch at page 311:-

 

"I think it quite impossible to infer from these facts that the creditor discharged the original debtor, and took the factor as a substitute for the debt. In taking the factor's acceptance, I think the pursuers either took it on the footing that it was virtually their debtor's acceptance, or that they took it as a temporary accommodation, leaving their debtor in the same position as before. In either case the debt remains equally untransferred."

 

(v)                W J Harte Construction Limited v Scottish Homes 1992 SC99 in which the Lord Justice Clerk (Ross) having cited the relevant passages from Erskine and Gloag etc observed (at page 112):-

 

"... there is a presumption against novation or delegation and, in my opinion, the evidence was not sufficient to overcome that presumption. This was a case where the parties corresponded about the contract without apparently taking legal advice, and the result is that it is not made clear precisely what they were endeavouring to do. I am certainly not persuaded that it is clear that the intention was that W J Harte (City) Limited was to be substituted for the appellants as the party to the contract. Before I could hold that that had been what parties intended to do, there would require to be clear language expressing such a result. There is an absence of any such clear language, and the result must be that the presumption against novation or delegation has not been rebutted."

 

(vi)              MRS Distribution Limited v D S Smith (UK) 2004 SLT631. The Lord Ordinary (Drummond Young) having dealt with the relevant authorities went on to state at para (10):-

 

"For the defenders it was submitted, on the authority of McIntosh and Son v Ainslie supra that parties cannot drift unconsciously into delegation, but must make their meaning clear and plain. While it is obviously correct that the fact of delegation and the parties' intentions must be sufficiently clear, that clarity can be a matter of inference from facts and circumstances, based on the objective construction of the parties' actings. There is no need for express consent."

 

It was still important for the defender to aver facts and circumstances from which she could lead the evidence to overcome the presumption against delegation. The position on delegation had to be crystal clear from the pursuers' point of view in terms of the liquidator's possible remedies against the defender's husband under Section 242 of the Insolvency Act 1986. The pursuers could not make a move in that direction pending the uncertainty in the defender's averments. Her position was equivocal. On the one hand she was maintaining that delegation took place and on the other that if it had not then in any event she had actually paid off the loan. The repayment had obviously taken place after delegation is supposed to have been effected so these were completely conflicting averments on Record. The defender and her husband were the only two persons involved in what was going on. Why could they not make specific averments about it? It was entirely within their knowledge about what had been happening at the time. There was an obligation on the defender to choose what her case was. Either her debt had been delegated on 1^st March 2005 or she had credited the full amount of the loan account after that date. I was referred to MacPhail on Sheriff Court Practice (second edition) pages 276 to 277; Clerk v Edinburgh District Turnways Limited 1914 SC775 and Smart v Bargh 1949 91. The averments dealing with delegation were irrelevant as nothing was said about the consent of the company and were also lacking in specification. This aspect of the defender's case should be dismissed. The averments in question should not be allowed to go to probation.

 

Submissions for Defender

Mr Ralston submitted that the first point in the pursuers' Rule 22 Note did not take account of the fact that the averments in question were attempting to set the background to how it came about that the incoming director subsumed the outgoing director's loan. The real issue between the parties remained whether or not the defender's liability to the company had thereby been extinguished. As to the criticism of the defender's lack of a specific plea-in-law dealing with delegation, the defender's averments were summarised in the second part of the Rule 22 Note. What was delegation? It was the substitution of one debtor for another. The averments themselves were to be found in answer 3 of the Record. The defender was entitled to explain what was going on while she was a director. She averred that the arrangement that she and her husband came to "was discussed and agreed with the company's accountants who reflected the arrangement in the Books and Accounts of the Company." It was true that the defender could not produce any company minutes recording the position but that did not deflect from the relevancy of her case. The sole issue remained whether or not she could make out a delegation and she was entitled to a Proof Before Answer for that purpose. All she had to do to satisfy the test of relevancy was to aver what she said happened and it was clearly relevant to the issue of consent to prove what was done in the company books and records. The pursuers would have every opportunity to cross-examine the accountants on these matters. It was important to bear in mind that the defender's husband was not a party to the action and indeed the parties had since separated.

 

It was not in dispute that delegation required the consent of the creditor but that consent could be inferred. The absence of any documentation in the form of correspondence or company minutes was not fatal to the question of relevancy against the background of this being a small family company setting up an illegal company loan. That absence had to be viewed against the previous practice of an absence of formality and raised a pure matter of fact that could only be resolved by inquiry. The defender averred that her husband became the sole director of the company on 1^st March 2005 and any debt then due by the defender was assumed by him and extinguished quoad her. She also averred that the company's own records supported this outcome. On those averments, delegation was clearly pled. A transfer to another party and extinction of the obligation of the original party was delegation. The defender's existing plea-in-law was habile to cover the position given the background disclosed in these averments. The absence of a specific plea-in-law dealing with delegation was not fatal to the defender's case as her averments gave sufficient and adequate notice of what she says happened. As Hunter v Falconer supra showed, delegation could be implied from facts and circumstances and these were sufficiently averred here to allow inquiry. As Lord Glenlee stated in that case: "... there may be delegation by facts and circumstances. And, though this is not to be presumed, it is established here. The conduct of parties can be accounted for only for on that supposition." That was primarily what the defender was maintaining in the instant case. The collective conduct of the parties and the company accountants all accorded with the supposition of delegation. The defender maintained that she should be given the chance to prove that as if she was right, she would have no liability. In opposing that the pursuers were setting too high a standard for proof. There was no need of formal company minutes before delegation could be established. It was not fatal to relevancy that no mention was made by the defender of an absolute discharge having been given to her by her husband as long as she was saying that the debt was extinguished. In Fox v Anderson supra the Lord President had remarked that there was no explanation of the original substitution by the pursuers for one brother for the other. But in the instant case the defender had given such an explanation. If anything the authority provided support for her submission that she should be allowed a Proof Before Answer. In MacIntosh v Ainslie supra the Lord Ordinary who had taken the Proof found that there was "nothing to instruct delegation beyond the bills themselves. There was no discharge granted by the pursuers when they took the bills, not even a receipt for the amount thereof. There was no delivering up of any document of debt; there was no letter or any document whatever expressing or implying Mr McLellan was to come in place of the defender. The terms of the bills or notes themselves do not imply discharge of the defender, for they expressly bear that they are granted as for work done for the defender, and for which the defender is directly liable." It was important to bear in mind, however, that that case was decided after Proof and one could not begin to analyse the principles involved until Proof had taken place. This was a further reason for a Proof Before Answer. Both that case and the case of W J Harte supra had been decided after Proof. The MRS etc case was the most up to date one and contained a useful summary of the principles to be applied. There was really no disagreement with the view expressed by the Lord Ordinary that the presumptions against delegation were unlikely to be of any significance until the conclusion of a Proof. The reality in the instant case was that this was a company that had been operating informally. The MRS case showed that the surrounding circumstances were important (cf para (13)) and it was not necessary to plead those extraneous circumstances at great length as all that was required was a brief indication of what the circumstances were so as to give adequate notice to the other side (vide para (14 foot)). I was also referred to Bell's Principles Section 576 following and Gow's Mercantile and Industrial of Scotland at pages 26 and 27. The latter pointed out that the burden of proof and presumption against delegation were as in novation and as is stated in the page dealing with novation "express formal discharge leaves no doubt, as also a statement in the document constituting the new obligation that the old is discharged. Every case must depend on its own circumstances, and if the original obligation be contained in a document, considerable weight will be given to the manner in which the creditor has dealt with it." This tended to suggest if a director's loan account had been credited in a formal document then any delegation of it would have to occur with the same degree of formality. The corollary of that, however, was that any informally created loan account could be delegated by informal means. It would not be fair to hold that the absence of a formal discharge of the obligation meant that there had been no delegation, or that any claim or delegation was ipso facto irrelevant. I was also referred to McBryde on Contract (3^rd Edition) at para 25-24:-

 

"To establish novation there must be evidence that it was the intention of the parties to discharge the old obligation. There can be an express discharge, or words indicating that the prior obligation has been satisfied, or conduct such as giving up the principal deed. In Nicholson's notes to Erskine, it is stated:

 

"Novation and delegation are so entirely questions of fact and intention that it is impossible to lay down any general rules as to what will constitute either of them.""

 

The Note 79 to that paragraph stated that although in W J Harte supra the Lord Justice Clerk and Lord McCluskey took differing views on the strength of the presumption in some commercial transactions the presumption against novation may be relatively weak and the reality was that in modern commercial practice the agreement between parties can be as stable as a cloud in the sky.

 

The defender, recognising the lack of formality in the arrangement and the presumption against it that such had been arranged, was able to foresee that she might well, at the end of the day, have difficulty in establishing delegation. It was in those circumstances entirely proper for her to aver in addition that if the loan could not be held to have been delegated to her husband, there were reasons why she could not in any event be expected to pay the full amount. That was the weaker alternative for her and the delegation position remained her stronger case. She was however entitled to put both forward without criticism.

 

Pursuers' Agent's Reply

 

The defender's stress on informality was simply an excuse for lack of specification. Why should the company and its liquidator suffer prejudice because the company affairs had been carried out in an informal way? I was referred to MacPhail at page 277 supporting the view that there should be a specific plea dealing with delegation. There appeared in any event to be a hiatus in the defender's scenario. The Record averred that she resigned on 28 February 2005. How could her responsibilities be assumed at that point by her husband who was not strictly speaking a director and did not become one until 1^st March 2005? There had to be an averment of how these decisions came to be made in the context of company procedure. The authorities showed that the consent of the company as creditor was required and a reference to an arrangement with the company accountants did not amount to a demonstration that the company itself had consented. The averment of what came to be reflected in the company accounts was not sufficient to allow inquiry to establish that the company bona fide accepted the delegation. In any event there was no specification of what was reflected in the company accounts so as to have the result claimed.

 

Defender's Agent's Reply

 

Mr Ralston reiterated that the elements of delegation had been pled even if that term had not been used. All that the defender had to do was aver all the reasons why she was not liable for what was sought. It was only necessary to prove one or other of the limbs of her defence to be successful. The want of a specific plea-in-law did not mean that her pleadings were irrelevant. As to the claimed hiatus in the delegation taking place, one director ceased being a director on 28^th February 2005 and the other director did not become a director until 1^st March 2005 so he could not assume responsibility for the loan account until the date of his appointment. There was no difficulty with that. It was difficult to see what else the defender could do to specify how the matter had been treated by the company accountants as the pursuers themselves had lodged as productions the accountants working papers and the company accounts, incorporating them into their pleadings. The company acting through its officers had been controlled by the defender's husband since 1^st March 2005 and the accountants at any inquiry would be able to confirm or deny that. As it was, the pursuers' own productions appeared to confirm and verify the defender's arguments. Mr Ralston reiterated his submission that I should allow a Proof Before Answer.

 

Decision

 

I deal with these various matters under two headings (1) Pleading Points and (2) Relevancy of case based on delegation.

 

(1)   A defender's plea-in-law should substantiate his entitlement to decree of dismissal or absolvitor and focus the legal issues in the case (vide MacPhail para 9.47) and if the defender was founding on alternative legal grounds, like the pursuer he must distinguish them by clear and precise language and separate pleas-in-law (cf MacPhail para 9.38). The defender's existing pleas-in-law are unfocused and fail to reach the required standard of clarity. They are framed as follows:-

 

"4. The sum sued for not being due and resting owing to the pursuers by the defender, decree therefore should be refused.

5.      Esto the defender is indebted to the pursuer (which is denied) the defender being a creditor of the pursuers is entitled to set off the credit due to her by the pursuers against her director's loan account with the pursuers in liquidation in diminution or extinction thereof."

 

Plea No 4 fails to state that one of the reasons for the sum sued for not being due by the defender is that the defender's liability therefor has been discharged by virtue of delegation to her husband. No 5 fails to explain how it can be that her director's loan account still remains in being if it has been taken over by her husband. It respectfully seems to me that had the defender framed additional pleas-in-law in the following way, the matter would have been clearer:-

 

"(a) the defender's liabilities, if any, in respect of her director's loan account having been delegated to the said Roy McConnachie in the circumstances averred, the defender should be assoilzied from the crave of the Initial Writ."

and

(b) separatum esto there was no such delegation (which is denied) there being in any event no further sum due by her in the circumstances averred, the defender should be assoilzied from the crave of the Initial Writ."

 

Establishment of one or other of those positions would lead to absolvitor. By separating them out thus it becomes clear that the defender is maintaining that there is a specific reason why she is not due and resting owing anything to the pursuers viz delegation of her debt has taken place and secondly on the hypothesis that she is unable to establish that or there is a positive finding against her that there was no delegation, she would still have a right to be assoilzied due to any debt having been "cleared" for the variety of reasons averred by her on record (vide page 6 of the Closed Record). I agree with Mr Ralston that these are not truly conflicting positions but on the other hand I agree with Mr Young that the existing pleas-in-law do not focus the position clearly. There is some limited support from the various authorities quoted to me that a specific plea dealing with delegation should be inserted by the party claiming it. Neither 'Dudgeon' nor 'Hunter' supra appear to feature a specific plea. 'Fox' however does maintain that there had been a "delegatio debiti" (vide page 1196 supra). 'McIntosh' also has a specific plea viz "said debt is ... extinguished by delegation" (vide page 305 supra). 'W J Harte etc' stated in the Rubric "the defender pled that the pursuer had no title to sue as the contract had been delegated to a subsidiary company" (vide page 100) but the only plea recorded in the report is merely "the pursuer having no title to sue, the action should be dismissed with expenses" (ibid) No doubt similarly in the instant case there could have been a plea of no title to sue on the basis that the loan account liability had been delegated to the defender's husband and the pursuers thereupon given up their right or title to sue the defender. That at least would have disclosed where the defender was coming from. 'MRS' supra does not state in the report what was pled by the party claiming delegation. On balance, I would have thought that such a specific plea was required, although in some cases absence of a specific plea may not be fatal where the case is otherwise made plain from the averments on Record (see my own reported case of Nimmo v Bank of Scotland 205SLT (Sheriff Court) 133 at 140). Where, however, there is not just one missing plea but two I consider that no such latitude should be afforded to the pleader and without such specific pleas having made to clarify the position the case should be held as irrelevant.

 

(2)   One element missing from the defender's averments on delegation is the question of the consent of the creditor, ie the pursuers. The authorities cited show that such consent is necessary for delegation but its presence need only be a matter of inference from the surrounding facts and circumstances rather than a manifested fact. That is brought out clearly in the dicta of Lord Drummond Young at paragraph 10 quoted above. (and see also P637B and 637G) It is readily understandable that in the context of the transfer of a business the inference might well be that any contracts still to be completed by the transferor company would become the responsibility of the transferee company and that this would be readily apparent to the other party to the uncompleted contract and might well have met with their implied approval. The scenario in the instant case does not raise any such readily understandable inferences. According to the defender she was a figurehead only so as to allow her husband to continue to run the business while he was bankrupt. The arrangement averred in the pleadings, as it would clearly constitute an offence under Section 11(1) of the Company Directors Disqualification Act 1986 for an undischarged bankrupt to directly or indirectly take part in or be concerned in the management of a company without leave of the court, would be an illegal arrangement and for that reason alone would not give rise to "the very natural inference" that Lord Drummond Young found to be present in the context of the (legal) sale of a business. There would be no inference in that situation that the pursuers as creditor consented to an illegal arrangement. The fact that the company accountants went along with it and "reflected the arrangement in the Books and Accounts of the company" only shows that they followed the instructions given them by either the defender or her husband or both and it does not per se show that the pursuers as creditor consented. The defender would have to point to other facts and circumstances from which the pursuers' consent was either made plain or could be unequivocably inferred. There are many ways in which individuals may bind a company. As is pointed out in Chitty on Contracts, Volume I para 9-006 (28^th Edition):-

 

"The principles of attribution were analysed by Lord Hoffmann in Meridian Global Funds Management Limited v Securities Commission (1995) AC500. First, there are the company's primary rules of attribution which are to be found normally in the company's constitution (the articles and memorandum of association) and which will determine who or which organ of the company can enter into transactions on behalf of the company. The primary rules of attribution may also be provided by the rules of company law, for example, the principle that the unanimous decision of all the shareholders of a solvent company, even though given informally, constitutes a decision of the company. Coupled with the company's primary rules of attribution are general rules of attribution, namely, the principles of agency and vicarious liability. There will be situations, however, where the primary and secondary rules of attribution do not provide an answer and in these situations the court will have to determine who, if anyone, for the particular matter under consideration is intended to count as the person whose acts are attributed to the company."

 

Even if that approach has not met with 100% support in Scots Law (vide 3^rd supplement to Gordon's Criminal Law (3^rd Edition) at para 8.103 to 8.107 and the leading case of Transco plc v HMA 2004 SLT41) and any attribution should continue to rest on the "directing mind and will" basis, the fact remains that the defender's averments do not disclose any basis of attribution of consent to the pursuers in any way whatsoever. If there had been no consent given, the facts averred by the defender would not have to be altered to accommodate that fact in any way. Moreover, from the existing averments' lack of specification on the matter, the arrangement itself could well have started and remained as nothing more substantial than, for example, pillow talk between the defender and her husband without any specified means of showing that the pursuers, through the directing mind and will of either or both of the defender and her husband, gave their consent to such an arrangement. What the company accountants did or did not do in that respect does not necessarily show that it was done with the approval of the company qua company. It has rather been assumed that any debt due by the defender to the pursuers could be single handedly assumed by the defender's husband without his having to show that the pursuers as creditors also consented on the footing that as this was a one man company he and it were the same. That would be to ignore the difference between a company as having a legal personality distinct from both its shareholders and its directors. That is why I consider that Mr Young was correct, in the context of the presumption against delegation, to insist that the defender point to some company minute or record showing or implying consent to the arrangement, otherwise (echoing the point made by Counsel for the defenders in 'MRS' supra at page 637A) there is no averment of when, how and through which representatives consensus in idem was reached among the three parties involved to discharge the defender of all liabilities and to substitute her husband as the new obligant in her place for all purposes and in particular for all payment due. The role of the pursuers as creditors in the matter remains without comment or averment by the defender and that point remains valid no matter the degree of informality or formality with which the company affairs were habitually conducted. For that reason, I hold that her defence based on delegation is irrelevant and should not be admitted to probation.

 

As already indicated, the defender has a specific and independent defence that even without delegation being established, she will be able to show that she has cleared any debt that she might have been owing to the pursuers. This is on the basis of the factors averred by her, viz her entitlement to set off dividends awarded to her but never received, her own expenditure for the company on legitimate business purposes and her payment into company funds of the proceeds from the sale of her heritable property. I have allowed these issues to go to a Proof Before Answer at a date to be hereinafter assigned and have also fixed a later hearing on expenses, at which point it may be possible to ascertain specific dates for the Proof Before Answer.