Pursuer: Logan; Campbell Smith WS LLP

Defender: G MacColl, ACH Shoosmiths

13 March 2014

[1] Dominic Pelosi and Robert (Robbie) O'Donnell (the first and second pursuers) are grandchildren of the late Karoline O'Donnell, who died in 1994. The defenders, who include James O'Donnell (Robbie's father) are her children, and her executors and trustees. In terms of her will, each of her six grandchildren were left four ordinary shares in the family business, RJ O'Donnell Ltd, giving each a 4% share in the company. The remaining shares were divided between the defenders as individuals. Each grandchild's interest was to be held in trust until reaching 40 years of age, or earlier at the discretion of the trustees. In this action, the pursuers complain that between 1994 and 2000 no dividends were paid to the grandchildren, and that in January 2002 the defenders, as trustees on their behalf, waived their entitlement to dividends in respect of the 24 shares held in trust. Between 2002 and 2007 the dividends were divided between the defenders as individuals, with nothing to the grandchildren. The pursuers now seek a declarator that the above amounts to a breach of trust, and also various payment orders.

[2] The defenders' pleadings include averments to the effect that the second pursuer compromised any claim he might have. It is said that on 3 June 2010 he visited his father (the first defender) at the latter's home in Edinburgh, and stated that he was in financial difficulty. The defences aver that, in the presence of the second pursuer's mother, it was agreed that his father would give him £11,000 in settlement of any claim which he might have against the trustees. In due course the pursuer cashed cheques of £6,000 and £5,000. It is pleaded that in these circumstances the second pursuer is barred from pursuing his claim. The second pursuer contends that these payments were gifts. He avers that neither payment was discussed in front of his mother.

[3] The question of whether the second pursuer is entitled to pursue his claim against the trustees was the subject of a preliminary proof. I heard evidence from the first defender, his wife and the second pursuer.

James O'Donnell's evidence

[4] Mr James O'Donnell is a retired dental surgeon who lives in Edinburgh with his wife. When his father died he was left in charge of the family business. His brother, a chartered surveyor, joined the business to assist Mr O'Donnell. Mr O'Donnell explained the terms of his mother's will, all as summarised earlier. His son Robbie O'Donnell is a chartered surveyor. When in 2007 Robbie reached 40 years of age, he was given his share certificate in respect of the family business. Thereafter the issue as to dividends arose. This developed into letters from solicitors acting for his son. James O'Donnell felt very hurt. The dispute began to have an impact on his wife's health. During this period he and his wife had little direct contact with their son, who had moved to Spain with his wife and family. In 2010 he received a phone call from Robbie who explained that he needed to see his father. There was urgency in his voice. A meeting was arranged for early June.

[5] Robbie O'Donnell came to the house at about 7 o'clock in the evening. He explained to his parents that he had not paid the mortgage for three months, and had no money to pay a contractor who had carried out some work at a property he owned in Wishaw. He required £5,000 in relation to the mortgage, and £6,000 for the contractor. Mr O'Donnell said that he would pay his son this money if he agreed that this would settle the dividends issue. According to Mr O'Donnell his son said that he also wanted the matter settled. Accordingly, Mr O'Donnell wrote his son a cheque for £6,000. He would require to place money in his cheque account and would give his son the balance on his return from holiday. Robbie said that he would use the money in relation to the mortgage, the builder being willing to wait for two weeks.

[6] When Mr O'Donnell returned from holiday he met his son on 24 June at the top of North Castle Street in Edinburgh, near to where his son lives. There was no discussion as to dividends at that meeting. He gave him a cheque for £5,000 dated 24 June. Mr O'Donnell strongly denied that the £11,000 was a gift to his son. In his view there could be no misunderstanding on the matter. He was hoping that he would have a better relationship with son and that his wife's health would improve with the settlement of the legal claim. At the time relations with his son were not good. He was shocked at his son's financial problems, and was concerned for his daughter-in-law and grandchildren. Had he been asked for a gift he would have refused, not least given the effect of the legal claim on his wife's health. If his son had refused to give up the claim regarding the dividends, Mr O'Donnell would not have given him any money. Under reference to production 7/5, Mr O'Donnell noted that the two cheques were cashed on 3 and 30 June 2010. So far as the first meeting is concerned, Mr O'Donnell's wife was present throughout.

[7] Mr O'Donnell was cross-examined as to the operation of the trust in favour of the grandchildren. In my view these questions were of limited relevance to the issue arising in the preliminary proof. Mr O'Donnell accepted that the pursuers' claim was vigorously disputed, and that objections were lodged with the Scottish Legal Aid Board in relation to the first pursuer's legal aid application. It was noted that those objections made no specific reference to the alleged settlement of the claim by the second pursuer. Mr O'Donnell explained that the objection related to Dominic Pelosi's application. Mr O'Donnell accepted that at the time he did not tell his lawyers about the settlement of his son's claim. It took place after the correspondence between solicitors had ended.

[8] Reference was made to a letter of 16 August 2011 written by James O'Donnell in response to Dominic Pelosi's legal aid application (production 6/18). According to Mr O'Donnell, the mention of July 2010 on the second page should have been May 2010. It was noted that there was no specific reference to settlement of the claim in June 2010, other than perhaps "We have heard nothing from Russell +Aitken since that time, but I have been told that Mr R.J. O'Donnell has accepted the situation." Mr O'Donnell explained that he was focusing on writing to the Legal Aid Board in respect of Mr Dominic Pelosi's claim. It did not occur to him to mention the June 2010 agreement. It was put to Mr O'Donnell that he was willing to say that the claim had been abandoned, but not that his son had been "bought off". Mr O'Donnell said that he was "acting as an opponent". He did not think it was relevant to mention the £11,000 payment in settlement of his son's claim. The references in the letter to the claim having been "already tested in law" and having been "previously unsuccessful" were aimed at the earlier correspondence between lawyers, which by then had come to an end. The matter was over, so why should public funds be used to support Mr Dominic Pelosi's case? That was the point he was attempting to make. It was put to Mr O'Donnell that the correspondence with the Board from him and his brother Kevin would be accurate if, rather than settle the claim, his son had simply decided not to pursue it at that time. Mr O'Donnell insisted that his son agreed that the issue was resolved in return for the £11,000. Letters were written to the Board in opposition to the claim being presented by Dominic Pelosi.

[9] Mr O'Donnell was referred to the terms of his letter of 12 August 2011 to his son (production 6/6). He explained that, amongst other things, he was seeking to "cement" the resolution of the dividends claim, he being aware that the verbal agreement had been disputed. Reference was also made to a letter dated 8 January 2012 from Robbie to his father (production 6/15) in which he said:

"I refer of course to mum's letter of 26 May 2010: following our return from Spain, Mum requested I stop the legal action, as she saw this as the only way you both could have a relationship with my children. I did so. Unfortunately, as late as New Year 2012, no effort has been made by either of you to establish this relationship."

Mr O'Donnell explained that the letter from his wife to Robbie (production 6/13) followed on her son sending flowers on her birthday. Under reference to Mr O'Donnell's letter of 11 January 2012 to his son (production 6/16), Mr O'Donnell accepted that this is the first specific written mention of the June 2010 agreement. In it he said:

"You told me, in mum's presence, that in return for payment to you of £11,000, you agreed to settle and finalise the matter which you had been pursuing against me. I told you that I would make this payment to you, which I did by cheque in June 2010, without admission of any liability. These cheques were cashed by you, thereby settling the issue. If, however, you propose to renege on our agreement, please return the £11,000 to me, without delay."

[10] In re-examination, Mr O'Donnell explained that his letters to the Legal Aid Board were written without legal advice. He did not look back in the archives to check particular dates. With reference to the letter 6/16, it was confirmed that Robbie O'Donnell had not repaid the money.

The evidence of Mrs Ellen O'Donnell

[11] Mrs O'Donnell recalled the key meeting, which took place on Tuesday 1 June 2010. She and her husband were going on holiday at the end of that week. Relations between father and son were strained. There was a lot of conflict between them. She was present throughout the meeting. Robbie told them that his mortgage had not been paid for 3 months. He was worried. He owed money to a building firm. Mr James O'Donnell was angry. He said that Robbie had caused his mother a lot of worry and anxiety, which was correct. He said that he would write Robbie a cheque to allow the mortgage to be resolved. Money would be lodged in his current account, and, after his return from holiday, he would transfer a further £5,000. These were not gifts. It was made clear that this would be an underlining of everything that had gone before, all in the hope that they could recover the family relationship. It meant drawing a line, with no more being said about dividends. Robbie said that he also wanted it to be finished. He could not have understood that these payments were gifts.

[12] In cross-examination Mrs O'Donnell explained that she was aware that there had been about eight to nine months of lawyers' correspondence. This had finished about a month before Robbie's visit. She had written him a letter in May 2010. This was in response to flowers sent to her on her birthday. The meeting on 1 June focused on Robbie's financial difficulties. Her husband told Robbie that he was paying him the money to help with the two bills. He also said that he did not want to hear further regarding the dividends. He was paying this to draw a line under all that had gone before, so that relationships in the family could be restored. The money was paid on the understanding that this would be the end of any talk about dividends. At the time Mrs O'Donnell gained the impression that Robbie had also had enough of the whole matter.

Robbie O'Donnell's evidence

[13] Mr O'Donnell is 46 years of age. He qualified as a chartered and valuation surveyor. Since 1998 he had been involved in property investment. He lived in Spain from 2003 to March 2010. Having received his mother's letter in May 2010, he phoned her. She passed him to his father. They agreed to meet. He thought that the meeting took place on a Saturday or Sunday at the end of May, and lasted at least three hours. (His parents estimated that the meeting lasted about one hour.) The meeting was primarily aimed at trying to re-establish a relationship between his parents and his children. He said that his father refused to discuss business matters in front of his wife. The property in Wishaw was discussed for about one and a half hours. Later he raised the issue of the dividends. He wanted to discuss the matter. His father refused. Robbie O'Donnell mentioned his financial difficulties relating to the credit crisis and to bank charges of £1,400 to £3,100 per month. He knew that there would be a difficulty over the next payment due in June. There was no discussion of a contractor's bill. This was raised later at a second meeting. At the first meeting he was concentrating on cash-flow and the mortgage payment due on 28 June. This was the background to the £6,000 payment. There was no agreement that his father would pay him £11,000. Robbie O'Donnell did not quote a figure. His father gave him the £6,000. He called it a gift. His father had made him gifts before, although he had always repaid his father. His father "knew that I was in a bind". As long as he could make that payment then his cash-flow would be maintained. The dividends claim was discussed, but according to Robbie O'Donnell, his father did not tie it to the money paid to him. Robbie O'Donnell denied that there had been any settlement of the claim concerning the dividends. He would not have accepted £6,000 by way of resolution of what was a £23,000 claim. The money was given to him as a gift. Robbie O'Donnell still intends to repay it when his finances allow.

[14] Towards the end of June 2010 Robbie met his father in Brown's restaurant in Edinburgh. He had renegotiated the commercial loan, and it was down to £1,500 a month. However he was being pursued by the contractor in relation to a retention payment of approximately £4,800. This was the first time this was discussed with his father. His father was unhappy but, at the end of June, during a meeting in the car, he offered the money to his son. According to Robbie O'Donnell, the dispute in relation to the dividends was "left lying". Under reference to his email of 11 November 2010 (production 6/14), he explained that he wanted to meet with his father, mother and uncle Kevin to discuss the claim. All the other grandchildren were due money. This was not going to go away. He had "stood down" his solicitors. Though the matter was still outstanding, he was hopeful that it would be resolved now that he was back in Edinburgh. He wanted to sit down and sort it out.

[15] In August 2011 "our friends at HMRC were after him" in respect of personal tax of £53,000. He consulted a debt advisor, who suggested he try to sell his shares in the family business. At this time he had a meeting with his father. This was the background to his letter of 12 August 2011 (production 6/6). His father was insistent that Robbie O'Donnell sign it, but he refused to do that. Under reference to his letter of 8 January 2012 (production 6/15), Robbie O'Donnell explained that he took advice on its terms from a lawyer. His father was attempting to stop Dominic Pelosi from obtaining legal aid on the basis of something that was not true - see production 6/18. The reference in the letter to Robbie O'Donnell having stopped the legal action was explained on the basis that his mother asked him to "stop going after his uncle". He had never agreed to waive or settle his claim in return for payment of £11,000.

[16] In cross-examination Mr Robbie O'Donnell accepted that he had sat through and heard the evidence given in court by his father and mother. As to the payments of £6,000 and £5,000, they were gifts. Nonetheless he intends to repay them. Robbie O'Donnell acknowledged that he had obtained a loan from his brother, who was aware of his difficulties with the bank. He accepted that at the 1 June meeting he had spoken of his money problems. He is still under significant financial pressure.

[17] Mr Robbie O'Donnell was pressed over the terms of his email 6/14 dated 11 November 2010 and the reference to "the previous dispute we had over the historic dividends." This email was addressed to his parents and uncle Kevin O'Donnell. He was writing to the three trustees in the hope that they could all sit down and discuss the whole matter. With regard to the terms of his letter of 8 January 2012 to his father, he explained that at the June meeting he said to his mother that "we will calm things down" - "we will sort it out, hopefully we will sort it out round the table." The reference to having "stopped the legal action" meant that nothing formal had been served, and the legal letters had been stopped.

Counsel's submissions on the evidence

[18] For the defenders Mr MacColl observed that there was no dispute that the £11,000 had been paid and accepted. The issue is whether the court is satisfied that the first defender's account has been proven, in which event the second pursuer is barred from proceeding with his claim against the defenders. Mrs O'Donnell did not sit in court during her husband's evidence. Her evidence was consistent with that of her husband. They both gave their evidence in a straightforward manner. Mr Robbie O'Donnell accepted that his mother's evidence might reflect her understanding of what had happened. Productions 6/14 and 6/16 are supportive of the settlement of the claim.

[19] Mr MacColl drew attention to the presumption against donation, but did not place significant weight upon it. Principally he relied upon the clear evidence of the first defender and his wife, and the comparative lack of clarity from the second pursuer. In the whole circumstances it was entirely understandable that, in the light of the second pursuer's financial straits, and the stresses and strains arising from the legal dispute, particularly for Mrs O'Donnell, this was an opportunity to draw a line under the whole matter.

[20] For the second pursuer Mr Logan stressed that the onus rests on the defenders to prove the alleged contract. There was a sharp contrast in the evidence as to the events at the key meeting. The letters to the Scottish Legal Aid Board are inconsistent with the alleged compromise. They were consistent with an agreement to "park" the issue pending a round table discussion. This is supported by the cessation of correspondence between the parties' solicitors. The letters said that the claim had been unsuccessful. If the defenders' position at the preliminary proof is true, those were dishonest statements. Production 6/6 is inconsistent with the first defender's case. As to Mr Robbie O'Donnell's email of November 2010 (6/14), properly read its terms indicate that there remains an outstanding issue regarding the share dividends. The first written mention of a settlement was in January 2012. The solicitors were not told of any settlement. The first defender stated that he informed his brother, but this is inconsistent with his brother's letter to the Legal Aid Board, which stated that the claim was worth nothing because it had been abandoned.

[21] It is not credible that Mr Robbie O'Donnell would give up rights worth some £23,000 for less than half that sum. The obvious inference is that he was agreeing to "park" the matter pending discussions within the family. The court was invited to repel the relevant plea-in-law for the defenders and allow the second pursuer's claim to proceed along with that of the first pursuer.

Discussion and decision

[22] There was a clear conflict in the evidence as to the events at the key meeting in early June 2010. In such circumstances it can be helpful to consider the available documentation to assess whether it supports one side or the other. I consider that the relevant material lodged in court favours the defenders' account. In his email of 11 November 2010 to his father, mother and uncle, Mr Robbie O'Donnell referred to "the previous dispute we had over the historic dividends." He would not have said that if the dispute was still outstanding. The use of the past tense supports the proposition that he had agreed to settle the claim. A similar reference is made in his father's email to him of 12 August 2011, and again in his letter to his father of 8 January 2012, where he said that he "stopped the legal action". The settlement for £11,000 was clearly stated by Mr James O'Donnell in his reply of 11 January 2012. No one has suggested that there was any specific rebuttal by Robbie O'Donnell.

[23] It is true that there is no direct reference to the settlement agreement in the letters to the Scottish Legal Aid Board objecting to Mr Dominic Pelosi's application for financial assistance with his claim against the trustees. Much reliance was placed upon this by Mr Logan. It was suggested that this is evidence that there was no agreement. The other possibility, which I consider the more likely, is that the decision was made not to tell the Board that money had been paid to resolve Robbie O'Donnell's claim. While this does not reflect well on James O'Donnell in his dealings with the Board, none of the correspondence causes me to prefer Robbie O'Donnell's account of events in June 2010.

[24] In addition, I consider that the account given by Mr and Mrs O'Donnell is more consistent with the probabilities, given the circumstances as at early June 2010. Mr Robbie O'Donnell had instructed his lawyers to present a claim relating to the way in which his father and other relatives had looked after the grandchildren's interests in the family firm. Whatever its merits, this was bound to be distressing and destructive of family relationships. It was having an adverse impact upon his mother's health. Then, in financial difficulties, Robbie O'Donnell approached his father for help. I find it wholly understandable that his father would see this as an opportunity to draw a line under the dispute. It is likely that, given the pressure he was under, Robbie O'Donnell would have agreed to this. On the other hand, it is improbable that Mr James O'Donnell would simply give £11,000 to his son if he was maintaining such a personal and destructive legal claim.

[25] Although Robbie O'Donnell claimed that his mother was not present at the 1 June meeting, or at least not at the key moments, I prefer the evidence of Mr and Mrs James O'Donnell that she was present throughout. They both gave their evidence in a calm, careful and serious manner, fully reflective of the gravity of the situation. They both spoke clearly and plainly to the compromise arrangement. They were impressive witnesses. Mrs O'Donnell clearly found it an ordeal to give evidence. One potential explanation is that she had been pressured to perjure herself by her husband. To my mind, a more likely explanation is that she struggled to cope with giving evidence which necessarily exacerbated the already fractured relationship with her son. In contrast to his parents, Robbie O'Donnell gave his evidence in what I would describe as an overly self-confident, jaunty - almost "devil may care" manner. For all I know this may be typical of his character and personality, but I am not confident that he fully engaged with the questions - or even fully understood them. When in difficulties, he had a tendency to latch on to some relatively unimportant issue or detail and talk at length upon it. There was a marked contrast between the light-hearted manner in which he gave his evidence, and the care and seriousness displayed by his parents. I would require persuasive corroboration to prefer Mr Robbie O'Donnell's account of what was said and agreed at the meeting in June 2010. As it is, the documentary evidence, so far as directly relevant to the issue at hand, is more supportive of his parents' account, as are the surrounding circumstances. However, if it came to it, I would give a certificate of credibility and reliability to Mr and Mrs O'Donnell, but would be much more circumspect about the evidence given by Mr Robbie O'Donnell. I think that his ultimate version of events was that, at most, there was to be a suspension of the dispute pending a round table discussion aimed at an overall resolution. I am prepared to believe that he now honestly recalls the meeting in that way, but overall, I find that his parents' account of the settlement agreement has been proven to my satisfaction.

[26] I shall uphold the defenders' sixth plea-in-law, and grant decree of absolvitor in relation to the conclusions of the summons so far as directed against the defenders by the second pursuer. None of this has any impact upon the claim by Mr Dominic Pelosi, the first pursuer.