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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Bank Of Scotland v Reid & Anor [2000] ScotCS 161 (13 June 2000) URL: http://www.bailii.org/scot/cases/ScotCS/2000/161.html Cite as: [2000] ScotCS 161

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[1] This action concerns an alleged gratuitous alienation. The transaction challenged is an assignation of a lease by the first defender to his daughter, the second defender. The challenge is made by the Bank of Scotland ("the bank") in terms of Section 34 of the Bankruptcy (Scotland) Act 1985.

[2] By lease dated 1 August 1979, Mrs Jean Reid leased to her son, the first defender, the farm of Logieburn, Elgin. By standard security dated 21 July 1982, Mrs Reid granted the bank a heritable security over the farm of Logieburn "in security of all sums due and that may become due to the Governor and Company of the Bank of Scotland ... by [the first defender in terms of a personal bond]". The first defender was sequestrated on 14 March 1996. On 26 November 1997 he was served with a Notice to Quit by the bank in terms of Section 22(2)(f) of the Agricultural Holdings (Scotland) Act 1991. The Notice to Quit required his removal from the farm at Martinmas (28 November) 1998. Unknown to the bank, the first defender had by assignation dated 22 May 1995 assigned to his daughter the second defender his interest in the lease. The assignation provided:

[3] Despite the terms of the assignation, it was the first defender, and not the second defender, who responded to the Notice to Quit by a solicitors' letter dated 11 December 1997 requesting arbitration and reserving the right to object to the validity of the Notice to Quit. Again, despite the terms of the assignation, the first defender's agents in a Statement of Case dated 18 June 1998 described the first defender as the "tenant" of the farm. No mention was made in either document of the assignation in favour of his daughter.

[4] On discovering the existence of the assignation, the bank raised the present action seeking declarator that the assignation constituted a challengeable alienation within the meaning of Section 34 of the Bankruptcy (Scotland) Act 1985, and production and reduction of the assignation. In their pleadings, as amended on the day before the debate, the defenders aver two statutory defences: firstly, that adequate consideration was given, and secondly, that, at the time of the assignation, the first defender's assets exceeded his liabilities. The defenders also aver that the pursuers are personally barred from pursuing the present action.

[5] At debate, the pursuers intimated that they no longer insisted upon their second conclusion in the following terms:

Further the pursuers no longer sought production of the assignation, the relevant document having been produced. The pursuers moved for decree of declarator and reduction in terms of the first and third conclusions of the summons. The defenders for their part sought dismissal of the action on the ground that it was irrelevant; alternatively they sought to have their second pleas-in-law sustained and the pursuers held personally barred from insisting in the action, failing which they sought a proof before answer.

[6] Counsel for the defenders argued that a challenge in terms of Section 34 of the Bankruptcy (Scotland) Act 1985 was not open to the bank. The matter was one of relevancy, not title or interest to sue.

[7] Section 34 provides inter alia:

[8] Counsel for the defenders contended that the underlying purpose of Section 34 was to enable monies and assets to be recovered and ingathered in order to increase and enhance the debtor's estate for the benefit of the pool of creditors. However in the present case, the bank's avowed intention was to reduce the assignation, remove the tenant and sell the farm unburdened, thus making a greater recovery on the realisation of their security than they would if obliged to sell the farm burdened by a lease. The bank's primary purpose was therefore to make a greater recovery for themselves: they were not acting on behalf of or for the benefit of the general creditors. Reference was made to Brown & Co. v McCallum (1890) 18 R. 311. Nevertheless counsel for the defenders had to concede that (a) were the assignation to be reduced, and were the tenancy to revert to the first defender, the debtor's estate would be enhanced to some extent by the remaining term of the tenancy for the period until the tenant was forced to quit; and (b) the more the bank was able to recover by enforcing their standard security, the less the bank would claim from any funds available to ordinary unsecured creditors, and accordingly creditors other than the bank would benefit indirectly in that they would each receive an enhanced dividend.

[9] Counsel for the pursuers contended that the defenders' argument was truly directed to title and interest, or competency. There were no pleas-in-law supporting such an argument. In any event, as the defenders had very properly conceded, the bank's challenge under Section 34 would, if successful, benefit the general body of creditors. Reference was made to Short's Tr. v Chung, 1991 S.L.T. 472 at p.476K and Cay's Tr. v Cay, 1997 S.C.L.R. 556 at p.560G. The action was relevant.

[10] I consider that both counsel were correct in stating that some benefit would accrue to the general unsecured creditors in the event of a successful challenge by the bank in terms of Section 34. In my view, that is sufficient to meet the defenders' argument. Accordingly, I reject the defenders' motion that the action be dismissed as irrelevant.

[11] It was not disputed that the assignation prima facie qualified as an alienation challengeable in terms of Section 34. It was an alienation granted to a relative and thus to an associate within the meaning of Section 74. The alienation had been made within the five years prior to the date of sequestration, the date of sequestration being 14 March 1996, and the date of the assignation being 22 May 1995. That being so, counsel for the pursuers argued that in terms of Section 34(4) the court was obliged to grant decree of reduction unless the defenders had relevant averments relating to their statutory defences of adequate consideration and assets exceeding liabilities: cf. Short's Tr. v Chung, 1991 S.L.T. 472; MacFadyen's Tr. v MacFadyen, 1994 S.C. 416. The defenders did not have relevant averments in either respect, and accordingly decree of declarator and reduction in terms of the first and third conclusions of the summons should be granted.

[12] For the purpose of the debate, both counsel treated the averments of the first and second defenders as being virtually identical. Read short, the defenders' averments explain that adequate consideration in terms of Section 34(4)(b) was given for three reasons: firstly, the second defender made a payment of £6,000 to the first defender; secondly, the second defender waived a claim for wages against the first defender, valued at about £8,000; and thirdly, the second defender had expressly undertaken responsibility for the liabilities and obligations arising from the lease. Counsel for the defenders explained that the apparently self-contradictory averments suggesting on the one hand that the lease had no value on assignation, and on the other hand that it did have some value, were not intended to be contradictory. The first defender was simply averring that an agricultural lease which required the consent of the landlord before assignation had no value on the open market, and that, in the present case, the only asset of value, viewing the matter from the first defender's point of view, was the claim for compensation for improvements, manurial values, and so on. Thus the defenders offered to prove that adequate consideration had been given in respect of those items assigned which had any value. Appropriate valuation was a matter for proof.

[13] Counsel for the pursuers criticised the apparently contradictory averments relating to the value or lack of value of the lease assigned. The averments relating to adequate consideration were irrelevant for that reason alone: Macphail, Sheriff Court Practice (2^nd ed.) para.9.37; McSourley v Magistrates of Paisley (1902) 10 S.L.T. 86. Furthermore, it was wrong to contend that a lease which required the landlord's consent before assignation had no value. As the case of Baird's Exr. v Inland Revenue Commissioners, 1991 S.L.T. (Lands Tr.) 9, demonstrated, in almost every case the value of such a lease was significant: cf. Gill, Agricultural Holdings (3^rd ed.) para.34.13. Further, the averments relating to alleged consideration were insufficient to prevent the granting of decree de plano, for the following reasons:

[14] In relation to the alleged waiver of wages, counsel for the pursuers contended that the terms of the assignation were directly contradictory of such a waiver. There were no averments explaining the apparent contradiction. There were no averments of any contract of employment, or terms of employment, or agreed wage rates. Nor were there averments about the date when the claim for wages was given up, or averments that the discharge of any such claim was, at the time of the assignation, regarded as consideration. Such averments were necessary to constitute a relevant defence: cf. the circumstances in Dawson v Thorburn (1888) 15 R. 891, although that case had admittedly been determined after proof. A bold averment of an alleged lump sum due in wages was not sufficient to found a relevant defence.

[15] In relation to the alleged undertaking of responsibility for liabilities and obligations arising under the lease, counsel for the pursuers pointed out that such a liability arose automatically upon a lease being assigned: Rankine, Leases (3^rd ed.) p.171; Paton & Cameron, Landlord and Tenant pp.162-163. That being so, the alleged undertaking did not constitute consideration. Even if the averments were considered to be relevant, they were totally lacking in specification: "repairing buildings" and "repairing roads" could encompass a wide variety of work.

[16] In relation to the alleged payment of £6,000, counsel for the pursuers submitted that the terms of the assignation clearly recorded that no payment had been made in relation to the transaction. There were no outstanding proceedings seeking rectification of the assignation: contrast with the circumstances in MacFadyen's Tr. v MacFadyen, 1994 S.C. 416. There were no averments explaining the apparent contradiction. There were no averments about the alleged date of payment of the £6,000. There were no averments that any such payment was, at the time of the assignation, regarded as consideration for the transfer of the interest in the lease: cf. dicta in MacFadyen's Tr. cit. sup. at p.421.

[17] Counsel for the defenders submitted that the pleadings were sufficient to go to proof. Reference was made to Jamieson v Jamieson, 1952 S.C. (H.L.) 44; Short's Tr. v Chung, 1991 S.L.T. 472; MacFadyen's Tr. v MacFadyen, 1994 S.C. 416; Baird's Exr. v Inland Revenue Commissioners, 1991 S.L.T. (Lands Tr.) 9; Walton's Exr. v Inland Revenue Commissioners [1996] S.T.C. 18. Whether an agricultural lease had a value was a matter for proof. In relation to the question of adequate consideration, the defenders were entitled to prove that the three components relied on comprised adequate consideration in the circumstances. What was adequate had to be assessed objectively, and all the circumstances had to be examined. Any discrepancy between the wording of the assignation and the three types of consideration averred should be explored in a proof. Dawson v Thorburn (1888) 15 R. 891 had been decided after proof, and much had turned on the sufficiency of evidence. In relation to freeing and relieving the first defender of any liabilities, the bank had advised the first defender to give up leases because they were liabilities: in such circumstances, to relieve the first defender of such a liability could be viewed as consideration.

[18] I accept that the defenders' averments relating to the value or otherwise of the interest in the lease can be read in the manner explained by counsel for the defenders. Further, despite the many unsatisfactory features of the position adopted by the defenders in this case, not least the responses to the Notice to Quit, described above, I am not persuaded that the defenders' averments fail the test of relevancy as set out in Jamieson v Jamieson, 1952 S.C. (H.L.) 44. Consideration can be given in a variety of ways. Goudy, in A Treatise on the Law of Bankruptcy in Scotland (4^th ed., 1914) p.46, lists methods of giving consideration as including inter alia alienations for value received in money or money's worth, alienations in fulfilment of prior obligations, and alienations in respect of obligations undertaken or liabilities incurred in counterpart. The defenders in the present case seek to rely upon a combination of these methods.

[19] The averments relating to wages are admittedly sparse. All that is said at p.12F is:

As was pointed out in MacFadyen's Tr. v MacFadyen, cit. sup., at pp.421-422:

Nevertheless, in the present case, the defenders offer to prove a legal relationship of debtor and creditor existing prior to the assignation. In the circumstances, I consider that the defenders' averments relating to wages are just sufficient to admit them to proof.

[20] Turning to the averments relating to the second defender's undertaking all the liabilities and obligations connected with the lease, although such an undertaking would be an automatic consequence of an assignation of a lease, circumstances might arise in which an assignee's undertaking in fact relieved the assignor of obligations and liabilities considerably greater than the value of the interest in the lease. For that reason I am prepared to remit those averments to probation.

[21] In relation to the defenders' averments that a payment of £6,000 was made, clearly questions arise as a result of the conflict between the wording of the assignation and the defenders' averments. Issues of credibility, reliability, and weight of the evidence may play an important part in the determination of this part of the case. In such circumstances, had the defence rested solely upon giving consideration by means of payment of a sum of money, I would have been minded to accede to the pursuers' argument. However the defence depends on consideration having been given in a variety of ways, and although I have serious reservations about the adequacy of the averments relating to any payment of £6,000, I shall not in the circumstances exclude those averments from probation.

[22] In the result, I am unable to hold at this stage that every one of the three branches of the defence of adequate consideration will necessarily fail. Nor am I able to conclude that, even if only one branch of the defence of adequate consideration were to be proved, there would necessarily be inadequate consideration: some valuation evidence will be necessary if only to establish the value of the first defender's interest in the lease. In the circumstances I shall remit the defenders' whole averments so far as relating to the defence of adequate consideration to a proof before answer.

[23] Section 34(4)(a) provides that decree of reduction shall not be granted if the person seeking to uphold the alienation establishes "that immediately, or at any other time, after the alienation the debtor's assets were greater than his liabilities".

[24] The only averments in this connection are to be found at p.13D et seq. (first defender), and p.17C et seq. (second defender). The averments at p.13D are as follows:

[25] Counsel for the pursuers argued that the averments did not constitute a relevant defence. It was not enough simply to aver that "the first defender's assets exceeded his liabilities at a date after the said assignation". It was necessary to aver facts disclosing that, after the assignation, the first defender's assets exceeded his liabilities. The necessity of averring such facts could not be elided by reference to the Statement of Affairs, which, although not incorporated into the pleadings, counsel agreed could be referred to. That Statement was simply a first attempt by the trustee, on the basis of information supplied by the debtor, to assess the likelihood or otherwise of a dividend being payable to creditors. It was not therefore an adequate foundation for proof that assets exceeded liabilities: cf. Lombardi's Tr. v Lombardi, 1982 S.L.T. 81, a case admittedly decided after proof. The defenders had failed to set forth a relevant and specific defence.

[26] Counsel for the defenders stated that the defenders were offering to prove that at the date of the Statement of Affairs, the first defender's assets were greater than his liabilities. Fair notice was being given that a surplus of about £148,000 existed at that date. The defenders would have to prove the assets and figures contained in the Statement, but it could not be said that the defenders were bound to fail. Lombardi's Tr. v Lombardi, 1982 S.L.T. 81 had been decided after proof.

[27] When examined, the Statement of Affairs discloses assets such as a dwellinghouse at 1 Forteath Avenue, Elgin, with a reversionary interest of £44,000; debtors estimated to realise £400,000; and pension policies worth £30,000. Liabilities are listed, the creditors with the largest claims being the bank and H.M. Collector of Taxes. A surplus of £148,380.22 is brought out. Further, the defenders in their averments make reference to two assigned policies, the inference being that these policies or their proceeds enhanced the first defender's assets at the relevant time.

[28] Taking into account the contents of the Statement of Affairs, I consider that there is sufficient to entitle the defenders to a proof before answer on their averments relating to assets exceeding liabilities.

[29] The defenders make the following averments (the first defender at p.14B-15C):

[30] Counsel for the defenders invited me to sustain the defenders' second pleas-in-law relating to personal bar, and to assoilzie the defenders. Counsel for the pursuers opposed the motion, referring to Gatty v Maclaine, 1921 S.C. (H.L.) 1, and arguing inter alia that there were no averments relating to any facts which the first defender believed existed; any conduct on the part of the pursuers which induced the first defender to believe such facts; and in what way the first defender had acted on the basis of such a belief, to his prejudice. I agree with the pursuers. In my view, the defenders' averments relating to personal bar are of doubtful relevancy, not only because of the lack of averments of prejudice suffered by the first defender, but also because the averments do not state in terms that one of the topics discussed with Mr. Grant was an intended assignation of the farm of Logieburn to the first defender's daughter. Nevertheless, although I consider the averments relating to personal bar to be of doubtful relevancy, I have decided not to exclude them from probation.

[31] In view of the pursuers' statement that they no longer insisted upon their second conclusion, I shall repel the pursuers' second plea-in-law. Quoad ultra I shall allow a proof before answer. I shall reserve the question of the expenses of the debate to enable parties to address me on that matter.