The Supreme Court has allowed an appeal by a Canadian investment company against a ruling reducing its security over a Scottish hotel and golf course site.
The Court overturned a ruling by the Extra Division of the Inner House of the Court of Session that a 2001 sale of the property for a recorded price of less than £250,000 was a gratuitous alienation, conducted for significantly less than market value. The Extra Division had allowed an appeal by the liquidator of the sellers, and ruled that Foxworth Investments’ security over the property should be reduced as a result.
Foxworth argued successfully that, when the Letham Grange Development Company Limited, which had bought the property for over £2m in 1994, sold it in February 2001 to Nova Scotia Ltd (NSL) for £248,100, NSL also assumed debts of £1.85m owed by LGDC, which meant the Extra Division should not have overturned an initial ruling that the sale was not a gratuitous alienation.
LGDC went into liquidation in December 2002 and NSL granted a charge over the site in favour of Foxworth in January 2003. The liquidator brought proceedings against NSL seeking the reduction of the 2001 disposition on the grounds that the sale was a gratuitous alienation, an unfair preference or a fraudulent preference, and obtained a decree by default in 2009 when NSL failed to be represented at the trial.
The liquidator then brought these proceedings, seeking reduction of Foxworth’s standard security. He argued that Foxworth could not bring itself within the proviso in section 242 of the Insolvency Act 1986 since it knew at the time when it obtained the standard security that LGDC was in liquidation and that the sale by LGDC to NSL was open to challenge. In addition, he claimed that the relevant decisions of all three companies were made by their common director and directing mind, a Mr Liu.
S242 provides that an alienation made by a company within two years of the commencement of its winding up is challengeable by the liquidator, unless, in particular, “the alienation was made for adequate consideration”.
Foxworth argued that, as NSL had also assumed debts of £1.85m owed by LGDC to Mr Liu and his family, this brought Foxworth within the scope of the proviso, having obtained the standard security in good faith and for value.
Initially, The Lord Ordinary, Lord Glennie, rejected the liquidator’s case that the sale was a gratuitous alienation, but his decision was reversed on appeal by the Extra Division, which found that the judge had erred in law.
However, allowing Foxworth’s appeal, Lord Reed said that, though the Extra Division had correctly identified that an appellate court can interfere where it is satisfied that the trial judge has gone “plainly wrong”, it was wrong to consider that that criterion was met in the present case,.
He said: “There is a risk that it may be misunderstood. The adverb ‘plainly’ does not refer to the degree of confidence felt by the appellate court that it would not have reached the same conclusion as the trial judge. It does not matter, with whatever degree of certainty, that the appellate court considers that it would have reached a different conclusion. What matters is whether the decision under appeal is one that no reasonable judge could have reached.
“In the circumstances of the present case, in my opinion the Extra Division had no proper basis for concluding that the Lord Ordinary had misdirected himself or had failed to give satisfactory reasons for the factual conclusions which he reached on the evidence, or for concluding that he had gone plainly wrong. It follows that the appeal must be allowed.”
He said that Lord Glennie did not err in law, and had clearly understood the critical issue under section 242 to be whether “the alienation was made for adequate consideration”. He added: “The fact that he found the liquidator’s circumstantial case less impressive than the Extra Division reflected a careful and nuanced assessment of the evidence, and an understanding of the commercial realities of the situation with which the case was concerned.”
Describing the site at the start of his judgment, he said: “Letham Grange is a neoclassical mansion built in the 1820s, with extensive landscaped grounds. In modern times the house was converted into a hotel, and the grounds were laid out as two golf courses. The hotel became popular with golfers, and was also used by judges sitting on circuit in the nearby town of Forfar. The hotel closed in 2011, but remains known to Scottish judges as the subject-matter of a long-running legal dispute. That dispute has now made its second appearance in the United Kingdom’s highest court.”
Henderson v Foxworth Investments Limited and another Supreme Court (Lord Kerr, Lord Sumption, Lord Reed, Lord Carnwath, Lord Toulson) 2 July 2014
Craig Sandison QC and Usman Tariq (Instructed by Halliday Campbell WS) for the appellant
Lord Davidson of Glen Clova QC and David Thomson (Instructed by Burness Paull & Williamsons) for the respondent
The Supreme Court has allowed an appeal by a Canadian investment company against a ruling reducing its security over a Scottish hotel and golf course site. The Court overturned a ruling by the Extra Division of the Inner House of the Court of Session that a 2001 sale of the property for a recorded price of less than £250,000 was a gratuitous alienation, conducted for significantly less than market value. The Extra Division had allowed an appeal by the liquidator of the sellers, and ruled that Foxworth Investments’ security over the property should be reduced as a result. Foxworth argued successfully that, when the Letham Grange Development Company Limited, which had bought the property for over £2m in 1994, sold it in February 2001 to Nova Scotia Ltd (NSL) for £248,100, NSL also assumed debts of £1.85m owed by LGDC, which meant the Extra Division should not have overturned an initial ruling that the sale was not a gratuitous alienation. LGDC went into liquidation in December 2002 and NSL granted a charge over the site in favour of Foxworth in January 2003. The liquidator brought proceedings against NSL seeking the reduction of the 2001 disposition on the grounds that the sale was a gratuitous alienation, an unfair preference or a fraudulent preference, and obtained a decree by default in 2009 when NSL failed to be represented at the trial. The liquidator then brought these proceedings, seeking reduction of Foxworth’s standard security. He argued that Foxworth could not bring itself within the proviso in section 242 of the Insolvency Act 1986 since it knew at the time when it obtained the standard security that LGDC was in liquidation and that the sale by LGDC to NSL was open to challenge. In addition, he claimed that the relevant decisions of all three companies were made by their common director and directing mind, a Mr Liu. S242 provides that an alienation made by a company within two years of the commencement of its winding up is challengeable by the liquidator, unless, in particular, “the alienation was made for adequate consideration”. Foxworth argued that, as NSL had also assumed debts of £1.85m owed by LGDC to Mr Liu and his family, this brought Foxworth within the scope of the proviso, having obtained the standard security in good faith and for value. Initially, The Lord Ordinary, Lord Glennie, rejected the liquidator’s case that the sale was a gratuitous alienation, but his decision was reversed on appeal by the Extra Division, which found that the judge had erred in law. However, allowing Foxworth’s appeal, Lord Reed said that, though the Extra Division had correctly identified that an appellate court can interfere where it is satisfied that the trial judge has gone “plainly wrong”, it was wrong to consider that that criterion was met in the present case,. He said: “There is a risk that it may be misunderstood. The adverb ‘plainly’ does not refer to the degree of confidence felt by the appellate court that it would not have reached the same conclusion as the trial judge. It does not matter, with whatever degree of certainty, that the appellate court considers that it would have reached a different conclusion. What matters is whether the decision under appeal is one that no reasonable judge could have reached. “In the circumstances of the present case, in my opinion the Extra Division had no proper basis for concluding that the Lord Ordinary had misdirected himself or had failed to give satisfactory reasons for the factual conclusions which he reached on the evidence, or for concluding that he had gone plainly wrong. It follows that the appeal must be allowed.” He said that Lord Glennie did not err in law, and had clearly understood the critical issue under section 242 to be whether “the alienation was made for adequate consideration”. He added: “The fact that he found the liquidator’s circumstantial case less impressive than the Extra Division reflected a careful and nuanced assessment of the evidence, and an understanding of the commercial realities of the situation with which the case was concerned.” Describing the site at the start of his judgment, he said: “Letham Grange is a neoclassical mansion built in the 1820s, with extensive landscaped grounds. In modern times the house was converted into a hotel, and the grounds were laid out as two golf courses. The hotel became popular with golfers, and was also used by judges sitting on circuit in the nearby town of Forfar. The hotel closed in 2011, but remains known to Scottish judges as the subject-matter of a long-running legal dispute. That dispute has now made its second appearance in the United Kingdom’s highest court.” Henderson v Foxworth Investments Limited and another Supreme Court (Lord Kerr, Lord Sumption, Lord Reed, Lord Carnwath, Lord Toulson) 2 July 2014Craig Sandison QC and Usman Tariq (Instructed by Halliday Campbell WS) for the appellantLord Davidson of Glen Clova QC and David Thomson (Instructed by Burness Paull & Williamsons) for the respondent
