GERARD NIXON AGAINST LIVINGSTON FOOTBALL CLUB LIMITED
GE
OUTER HOUSE, COURT OF SESSION
[2015] CSOH 43
CA75/14
OPINION OF LORD TYRE
In the cause
GERARD NIXON
Pursuer;
against
LIVINGSTON FOOTBALL CLUB LIMITED
Defender:
Pursuer: MacColl; Aitken Nairn WS
Defender: Duncan QC; McClure Naismith LLP
17 April 2015
Introduction
[1] Between 2009 and 2013, the pursuer was a director of the defender (“LFC”). Along with certain other individuals, he made a number of loans to LFC during a period prior to and after its exit from administration in 2010. Some of those loans were made by the pursuer himself and some were made by companies owned and directed by him. The total sum repayable is agreed to be £215,367.48. The pursuer seeks decree for payment of that sum which, he contends, is repayable on demand in the absence of any contrary agreement. LFC contends that the pursuer, along with other investors, agreed in 2010 that the loans would not be repayable until LFC was able to make repayment, which it is not. The action came before me for proof before answer. The principal issue was the terms upon which the loans by the pursuer and his companies were made.
Background to the pursuer’s loans to LFC
[2] Since its renaming and relocation to Almondvale Stadium, Livingston in 1995, LFC has not been without financial difficulties. Between February 2004 and May 2005 it was in administration. By 2009 it was once again in financial difficulties, and on 24 July 2009 it entered administration as a consequence of debts owed to West Lothian Council. The administrator, Mr Donald McGruther of Mazars, invited offers to purchase the club.
[3] The pursuer is a businessman who has operated a painting and decorating business through a series of companies in and around Livingston. His trading companies have not been financially successful, and an order disqualifying him from holding office as a company director was made on 13 August 2014. In 2009 he was a fan of Livingston FC. One of his companies had previously loaned the club the sum of £92,000 in 2007. He wished to participate in efforts by other enthusiasts to save the club. In about April 2009 he was approached by Mr Gordon McDougall, an individual with considerable experience in the management and administration of football clubs. The pursuer and Mr McDougall agreed to work together to prepare a bid for the club. A third potential investor, Mr Robert Wilson, a livestock agent with previous involvement in football club administration, was identified. A bid of £250,000 for the whole share capital of LFC was made by the pursuer, Mr McDougall and Mr Wilson, made up of intended contributions of £100,000, £100,000 and £50,000 respectively. The bid was rejected by Mr McGruther as insufficient to pay the company’s creditors and the expenses of administration.
[4] The administrator’s invitation had also attracted the interest of Mr Neil Rankine, an individual with past and current interests in Scottish football clubs, who formed a company to make a bid to purchase the club. The company was named Livingston 5 Limited (“L5”). L5 made a bid of £450,000 for the whole share capital of LFC. This bid was also rejected as insufficient by Mr McGruther. However, he suggested to Mr Rankine that he might wish to speak to the pursuer’s group with a view to pooling resources and submitting a higher bid. This suggestion was attractive to Mr Rankine, who was interested in investing in the club but did not wish to participate in running it on a day to day basis.
[5] A meeting was arranged at the pursuer’s business premises. Mr Rankine knew Mr McDougall and Mr Wilson through past football connections, but he and the pursuer had not previously met. It is not clear exactly when the meeting took place although it was presumably towards the end of July or beginning of August 2009. Agreement was reached along the following lines. An offer to purchase LFC for £500,000 would be made by L5. Mr Rankine would contribute £250,000, the pursuer and Mr McDougall would contribute £100,000 each, and Mr Wilson would contribute £50,000. The pursuer, Mr McDougall and Mr Wilson would be allocated shareholdings in L5 of 20%, 20% and 10% respectively.
[6] The £500,000 bid was successful. A management licence to operate the club was granted by the administrator. The new board of directors of LFC consisted of Mr McDougall as chairman, Mr Wilson as vice-chairman and director of football, the pursuer as chief executive, and a nominee of Mr Rankine, namely Ms Carolyn Sumner. A fifth director, Mr David Stoker, joined the board in February 2010 as the representative of the Livi for Life Supporters Trust, and a second nominee of Mr Rankine, namely Mr Andy Gemmell, also subsequently joined. The directors of L5 were Mr Rankine and Mr Gemmell.
[7] The work of the board got off to a difficult start. The club had been relegated to the Scottish Third Division as a punishment for going into administration, and for a time its financial survival was in doubt. A period of severe winter weather contributed to a substantial fall in income. In the course of the 2009-10 season, sums of money in excess of the parties’ agreement were contributed by all four investors in order to meet expenses. Mr McDougall and the pursuer ran the club from day to day. Mr McDougall was concerned with football organisational matters. The pursuer dealt with LFC’s staff and players, negotiating contracts for players and administering the club’s facilities. Neither received any remuneration. There was, however, hope of an improvement in the company’s finances because Tesco had expressed an interest in purchasing the club’s ground, which was owned by the local authority but occupied by the company under a 50 year lease. A successful sale could have resulted in the club relocating to and playing debt-free at another site, together with a capital profit to the four investors. On 18 August 2010, LFC came out of administration. At that time the possibility of a deal with Tesco remained alive. No steps had yet been taken by Mr Rankine to transfer shares in L5 to the pursuer, Mr McDougall or Mr Wilson.
[8] A meeting took place between the pursuer, Mr McDougall and Mr Rankine. A minute of the meeting, which does not bear a date, was taken by Mr McDougall on his laptop. It was lodged as a production along with a minute of another meeting on 11 August 2010 and it may be that both took place on the same day. The undated minute refers to Mr Rankine suggesting “an AGM on 21st at 12 noon”. An AGM of L5 did take place on Saturday 21 August 2010, and on that basis I find that it is likely that the meeting to which the undated minute relates took place on or about 11 August 2010. The minute narrated inter alia:
“LFC
Meeting with NR – GN – GMcD
Discussion on formation of shareholding for GN, GMcD, RW, NR in Livi 5
C Sumner and A Gemmil will be on board as representatives of NR
The voting system employed will be representative of only NR (250), GN (100), GMcD (100), RW (50).
All other monies lodged by those individuals will be regarded as directors loans.
…
To protect all parties, it is suggested that a letter is prepared for signature by all parties that ‘No specific terms of repayment or interest apply to our business loans or shareholdings’. This may be extended to LFC and would probably need a separate letter.
This protests [sic; presumably “protects”] all parties from anyone suing for repayment either in the event of death or a fallout between parties.
In the event of death, the two sides of 250 each would be maintained. The RW, GN, GMcD side would have first opportunity to purchase and retain status quo.”
[9] A meeting of the LFC board was held on 16 September 2010. It appears that the directors present were the pursuer, Mr McDougall and Mr Wilson, and that Mr Rankine was also in attendance. Again Mr McDougall took a minute on his laptop. It contains the following passage:
“Livi 5 resolutions prepared by W McRae this morning were discussed and accepted that all were in agreement with the contents. Copies of resolution were supplied to each director. Agreed that Livi 5 directors supported this method of operation. Registered address of Livi 5 to be changed to Almondvale Stadium.
Share capital. Discussion on increase of share capital. Proposal that at present, we maintain the £100 share capital. All other investment will be regarded as directors loans to Livingston FC with an agreement that any loans will not be repaid on demand.
NR to ensure above is actioned within next week…”
The accuracy and proper interpretation of this narrative are matters of controversy.
[10] During 2011 and 2012, further loans were made to LFC by the pursuer, either personally or through his company Pres Dec Ltd, and also by Mr McDougall and Mr Rankine. The financial situation of the company did not improve. Nothing came of the hoped-for Tesco deal. The company’s annual accounts disclosed a steadily increasing shareholders’ deficit. The directors’ loans were categorised as “creditors: amounts falling due after more than one year”. A note to the accounts for the year ended 30 June 2013 stated:
“At the balance sheet date, the company’s liabilities exceeded its assets by £1,753,356. In order to meet its day to day working capital requirements, the company requires the continuing financial support of its directors and other lenders. In addition to the persons and amounts stated at note 13 other lenders include Mr N Rankine £404,220 (£389,220 – 2012). All of the loans are interest free and the lenders have agreed not to request any material repayment for the next twelve months. For the reasons stated at note 12 this may not include the amounts subject to the ongoing court case.”
In order to enable the statement in the penultimate sentence of this note to be made, the various investors (other than the pursuer) provided the auditors with letters in the following terms:
“I hereby confirm that as at [date]
I was due the sum of £[amount] from the above and that the loan is interest-free
I confirm that I will continue my financial support of the above as do not intend ask [sic] for any material repayment of the loan for the next twelve months.”
[11] On 8 September 2013, Mr Stoker resigned from the board of LFC. By now Mr Rankine had lost faith in the pursuer’s ability to operate the club in a financially sound manner. At a board meeting a few days after Mr Stoker’s resignation, a majority of the board, under Mr Rankine’s direction, voted to remove the pursuer from the board. The pursuer raised the issue of repayment of his loans. Mr Rankine acknowledged that the loans were outstanding and made certain offers of partial repayment. Relations between Mr Rankine and Mr Nixon then deteriorated and the offers were withdrawn. The present action was raised.
[12] After the pursuer’s departure from the board the company’s financial difficulties continued. An emergency committee was formed and certain individuals, including Mr Rankine and Ms Sumner, were persuaded to make short-term loans on the basis that these would be repaid before the longer-term directors’ loans. Those emergency loans have since been wholly or, in Mr Rankine’s case, partly repaid. Further, in about December 2013 Mr McDougall, who claims to have invested around £760,000 in the club, reached an agreement with LFC in terms of which he is receiving repayments of £2,167 per month.
The issue
[13] It is common ground that where two parties have entered into a contract of loan, the sum loaned is repayable on demand in the absence of any alternative agreement: see Thomson v Geekie (1861) 23D 693, Lord Justice Clerk Inglis at 701; Neilson v Stewart 1991 SC (HL) 22, Lord Jauncey of Tullichettle at 40. It is, however, open to the parties to agree that repayment will be deferred until the borrower is able to repay: see the opinion of the Court in Thompson v Jardine 2004 SC 590 at paragraph 28. There was no attempt by the pursuer to prove that LFC was currently able to repay his loans. The issue is accordingly whether an agreement was reached among the four L5 shareholders that the sums loaned to LFC by the pursuer would not be repaid until the company was able to repay them.
Whether agreement was reached: evidence
[14] The defender contends that agreement that the loans were not repayable on demand was reached at the board meeting on 16 September 2010. It is accordingly necessary to narrate the evidence of the various witnesses as to what was said at that meeting and, so far as relevant, at the preceding meeting recorded in Mr McDougall’s minutes.
[15] The pursuer did not recall a meeting in August 2010 and thought that Mr McDougall’s minute related to a meeting held in August 2009. At that time there were no concerns regarding anyone seeking to get their money back. At the meeting on 16 September 2010, there may have been discussion of directors’ loans but he was certain that no agreement was reached that the loans would not be repayable on demand. His interpretation of the minute was that Mr Rankine was to produce a formal document setting out any agreement regarding repayment. That did not happen. In his witness statement lodged in advance of the hearing, the pursuer recalled that during this period Mr Rankine and Mr Wilson threatened to withdraw their financial support; in his oral evidence the pursuer thought that this had not occurred until a year later.
[16] Mr McDougall did not recall the meeting on 16 September 2010 but confirmed that he had taken the minutes and that they would be an accurate account of what had been said at the meeting. So far as he was concerned it had been agreed by all of the investors in September 2010 that their loans would not be repayable on demand. He was not specific about when this agreement was reached; everyone knew that this was the position. There was no agreement in writing. He recalled that there had been discussion of the problems that might arise if someone died. By the end of 2010 he was satisfied that this problem had been resolved by the investors’ agreement that the loans were not repayable on demand.
[17] Mr Wilson did not remember the terms upon which his £50,000 investment had been made initially. He was content to pay the money to obtain shares and a seat on the board entitling him to attend matches, in the knowledge that the investment was a risky one which might or might not produce a return. His recollection was that the pursuer had proposed that the investors agree that the loans should not be repayable on demand, in order to prevent Mr Rankine from withdrawing his loan. Mr Wilson had had little interest in the financial side of the club: he attended matches on Saturdays and spent the rest of his time running his livestock business. He had loaned a total of £65,000 and had had nothing repaid.
[18] Mr Rankine confirmed that the initial agreement was that the pursuer, Mr McDougall and Mr Wilson would be allocated shares commensurate with their investment. According to his evidence, however, it was decided at the meeting on 16 September 2010 that this would not be done because it would be more difficult to take money out in the event that the deal with Tesco came to fruition. The minute of the meeting reflected what was agreed instead. The share capital remained £100 and the loans were treated as directors’ loans not repayable on demand. The reference in the minutes to NR “ensuring that the above is actioned” referred to the resolutions mentioned in the preceding paragraph. There was nothing further to be done regarding the loans.
[19] Mr Stoker was not at the meeting on 16 September 2010. On 15 January 2014 he wrote a letter to Mr Rankine, at the latter’s request, stating that throughout his time serving as a director he understood that the directors’ loans would only be repaid when the company was in a financial position to do so. His evidence to the court was to the same effect.
[20] Ms Sumner was not at the meeting on 16 September 2010 and her evidence regarding discussions at board meetings appeared to be based upon what she had been told by Mr Rankine.
Assessment of evidence
[21] I did not find any of the pursuer, Mr McDougall, Mr Wilson or Mr Rankine to be impressive witnesses. The pursuer’s recollection of events was vague. It was clear that from the outset he had been wary of Mr Rankine’s participation and suspicious of his motives. I accept that the pursuer expressed concerns regarding the possibility of Mr Rankine withdrawing his investment. The issue of repayment being sought in the event of the death of one of the investors or a fall out between them was, however, raised in 2010 at the meeting held on or about 11 August. I do not therefore accept the pursuer’s evidence that no concerns regarding demands for repayment had surfaced by September 2010, and I consider that his attempt to place these concerns in 2011 was untruthful. Mr McDougall and Mr Wilson were similarly vague on matters which one would have expected them to recall. There was a considerable amount of evidence at the proof about the running of the club after the pursuer’s removal from the board. It was my clear impression that since October 2013 the directing mind so far as financial matters are concerned has been Mr Rankine, and that he, Mr McDougall and Mr Wilson were all attempting, when giving evidence, to avoid any express acknowledgement of this. It was readily apparent that neither Mr McDougall nor Mr Wilson had, or indeed wished to have, any detailed knowledge of the financial side of the company, Mr McDougall being content to deal with matters related to football and Mr Wilson wishing only to attend matches. I reject as ludicrous Mr Rankine’s suggestion, in the course of his oral evidence, that since 2013 the club has been run by Mr Wilson. Because I did not find any of these four witnesses to be wholly credible or reliable, I have assessed their evidence regarding what was or was not agreed with care.
[22] I am, however, satisfied on the evidence taken as a whole that agreement was reached on 16 September 2010 that the loans made by the four investors, including the pursuer, were not to be repayable on demand but only when the company could afford to repay them, and that this agreement crystallised what was already a common understanding among them. I reach this conclusion for the following reasons. Firstly, it is important to recall that at the time when most of the monies were paid to LFC by the pursuer and others, they expected to receive shares in L5 in return. It cannot therefore be said, with regard to any sum provided to LFC prior to September 2010 that the payer in question considered himself entitled to receive it back on demand. Secondly, I accept that Mr McDougall’s contemporaneous minute of the meeting of 16 September 2010 accurately records what was said. It was not contended that Mr McDougall had intentionally misrepresented the terms of the parties’ agreement, and I accept the evidence of Mr McDougall, Mr Wilson and Mr Rankine that the minute reflects what was agreed. I do not regard the minute as being open to the interpretation that the pursuer sought to place upon it, namely that there was to be no agreement until the matter was “actioned” by Mr Rankine drawing up a written agreement for consideration and signature. It is more natural to regard the “actioning” as referring to matters in the preceding paragraph such as instructing the change of L5’s registered office. Thirdly, I accept that in September 2010 the pursuer was expressing concern regarding the possibility of Mr Rankine withdrawing his funding, with a potentially devastating effect on the club’s funding, to say nothing of the potential Tesco deal, and that even if it was not the pursuer who suggested that the loans should not be repayable on demand, this was consistent with his own desire.
[23] I do not regard the letters provided in 2013 by various lenders to the auditors as assisting the contentions of either party. As Mr Peter Grimley FCCA who conducted the audit explained in his evidence to the court, the letters were provided in order to enable him to produce unqualified accounts on a going concern basis. The letters do no more than allow the loans to be shown in the accounts as not falling due within 12 months; they do not, in my view, cast any light on the basis upon which the loans were made.
[24] In support of the pursuer’s position, counsel founded on certain passages in the evidence of Mr McDougall, Mr Grimley and Mr Wilson. I have already indicated that I found Mr McDougall and Mr Wilson to be unimpressive witnesses. Having regard to the lack of financial awareness that they demonstrated, I do not consider it appropriate to place weight on statements elicited from them under cross-examination as to the consequences of themselves or others bringing proceedings, or choosing not to, or failing to put matters in formal writing. The thrust of their evidence, in my opinion, was clear: the loans were agreed not to be repayable on demand. Mr Grimley’s evidence consisted of what he had been told by the directors, and carries no weight when set against the evidence of the directors themselves.
[25] Nor does it assist the pursuer to point to the repayments that other directors have received. I accept Mr Rankine’s evidence that such repayments have largely been of sums loaned after the pursuer’s departure, when emergency funding was needed and could only be obtained if lenders were promised priority of repayment. There was, of course, nothing in the original investors’ agreement to preclude such priority being accorded. The exception is the extremely modest rate of repayment, inadequate to repay the loan within a reasonable period of time, agreed with Mr McDougall. It will be recalled that the pursuer was also offered partial repayment but did not consider the terms of any offer to be acceptable.
[26] Finally, the concept of making a loan on the basis that it is not repayable unless and until the borrower can afford to repay, which might be regarded in certain contexts as uncommercial and therefore improbable, seems to me to be much less improbable where the borrower is a company operating a football club. Whilst I accept on the basis of the evidence led that an investor in a Scottish professional football club may entertain a hope of making a substantial profit on his investment, for example through a windfall benefit arising from a land sale, this is unlikely to be his or her primary motivation. Like many who are willing to put money into Scottish league football clubs, the L5 shareholders in the present case were, first and foremost, football enthusiasts with a desire to participate in the control of a club. It is not inherently unlikely that they would agree not to demand withdrawal of their contribution unless and until the company operating the club was in a sufficiently sound financial position to afford to repay it. That is particularly likely to be true with regard to LFC in 2009, when the company was in administration and the club had been relegated to the bottom tier of the Scottish Football League, with consequently bleak financial prospects. According to his own evidence, the pursuer’s primary motivation was his support for the football club and his desire to put something back into the town of Livingston. I do not doubt that he wished to obtain a return on his investment if possible, but I consider it improbable that he made his very substantial financial contributions to the club on the basis that he could demand them back at any time, regardless of the consequences for the future of the club.
Conclusion
[27] For these reasons I hold that the pursuer has failed to prove that he is entitled to repayment on demand of the sums loaned to LFC by him or by companies under his control. The defender had a subsidiary argument that the pursuer was in any event entitled to recover only those loans made by him personally. It was submitted that there was no direct evidence that advances by the pursuer’s companies were properly to be treated as advances by him as an individual. It had been accepted on behalf of the pursuer that in order for loans by his companies to be so treated, it had to be established that the loans had been set off against sums due by the company in question to him, and that such set off had been properly accounted for and tax paid accordingly. No accounts had been lodged which demonstrated that this was the case in respect of any of the companies out of whose funds loans had been made. Oral evidence of the pursuer and of Mr Bryan Wood, the accountant who prepared the companies’ accounts, was not the best evidence, and should not be admitted. Reference was made to Scottish & Universal Newspapers Ltd v Gherson’s Trs 1987 SC 27, Lord President Emslie at 46. The point was not an idle one: the history of the conduct of these companies’ affairs by the pursuer raised doubt about any assurance that appropriate steps had been taken.
[28] I am satisfied on the evidence that the advances made out of the pursuer’s companies’ funds are properly to be regarded as loans made by him. In my opinion Gherson’s Trs is not directly in point. The context of the passage referred to in Lord President Emslie’s opinion was that the issue in the case was the content of the documents which could not be produced. In the present case the issue is not the content of the accounts per se but rather whether they in turn contain evidence as to whether the loans were set off against sums due by the companies to the pursuer. I consider that evidence other than the accounts themselves is admissible and capable of being sufficient proof of the point at issue. If the matter had rested upon the testimony of the pursuer alone, I would have had some difficulty in finding that evidence to be sufficient. There was also, however, clear evidence, which I accept, from Mr Wood that in each case the loans were made on behalf of the pursuer and rolled into his salary, with tax being paid accordingly. It follows that if I had found in favour of the pursuer on the principal issue, I would have found him entitled to repayment of the total sum of £215,367.48 agreed to have been advanced to LFC by the pursuer or by one or other of his companies.
[29] In the event, however, I shall repel the pursuer’s pleas in law, sustain the defender’s second plea in law, and grant decree of absolvitor, reserving all questions of expenses.