[2015] CSIH 12

CA25/13, CA26/13, CA27/13


Lord Menzies

Lord Brodie

Lord McGhie


delivered by LORD BRODIE

in the Reclaiming Motion

in the cause

(CA25/13) ALAN ALEXANDER BROWN and JOHN BRUCE CARTWRIGHT, the Joint administrators of Questway Limited

Pursuers and Respondents;



Defender and Reclaimer:


(CA26/13) ALAN ALEXANDER BROWN and JOHN BRUCE CARTWRIGHT, the Joint administrators of Oceancrown Limited

Pursuers and Respondents;



Defenders and Reclaimers:

(CA27/13) ALAN ALEXANDER BROWN and JOHN BRUCE CARTWRIGHT, the Joint administrators of Loanwell Limited

Pursuers and Respondents;



Defenders and Reclaimers:


Act:  Keen, QC, Ower;  Pinsent Masons LLP

Alt:  Fairley, QC, M Stuart;  MacRoberts LLP

13 February 2015


[1]        In terms of section 242(1) of the Insolvency Act 1986, as amended, where a company enters administration an alienation of the company’s property made on a relevant day is challengeable by the administrator.  In terms of section 242(4)(b) on the challenge being brought under subsection (1) the court shall grant decree of reduction or an order for such restoration of property to the company as may be appropriate, but the court shall not grant such a decree if the person seeking to uphold the alienation establishes that the alienation was made for adequate consideration.

[2]        The pursuers in this action, and respondents in this reclaiming motion, are the joint administrators of three of a group of companies, one of which is Oceancrown Limited (“Oceancrown”).  The others are Loanwell Limited (“Loanwell”) and Questway Limited (“Questway”).  In three separate commercial actions the pursuers seek the remedy provided by section 242(1) of the 1986 Act in respect of alienations made, respectively, by Oceancrown, Loanwell and Questway, of various heritable properties in Glasgow in November 2010. 

[3]        The three actions have been treated as related and they all came before the Lord Ordinary sitting as a commercial judge for one proof in combined proceedings.  After hearing evidence, the Lord Ordinary concluded that no consideration whatsoever had been made in respect of the alienations under challenge and, accordingly, granted decree of reduction in respect of two dispositions by Oceancrown and one disposition by Loanwell.  He ordered payment of the sum of £125,000 in favour of Questway.

[4]        The defender in the actions at the instance of the pursuers as administrators for, respectively, Oceancrown and Loanwell is Stonegale Limited (“Stonegale”). The defender  in the action at the instance of the pursuers as administrators of Questway is Mr Norman Ralph Pelosi Junior (“Mr Pelosi Junior”).  The defenders have now reclaimed.  There are therefore three separate reclaiming motions.  Parties were agreed that the issues in the three reclaiming motions were exactly the same and could be discussed and dealt with together, as had been the case before the Lord Ordinary.  Mr Fairley, QC and Mr Stuart appeared for the defenders and reclaimers.  Mr Keen, QC and Ms Ower appeared for the pursuers and respondents.


Grounds of appeal

[5]        Put short, no issue was taken with the primary facts found by the Lord Ordinary.  The contention of the reclaimers was that in the circumstances disclosed by these facts, evidence that had not been challenged and what had been agreed by joint minute of admissions, the Lord Ordinary had erred in finding that no consideration had been paid in respect of the alienations under challenge.


The facts

[6]        Oceancrown and the other companies in administration were part of a group controlled by Ralph Norman Pelosi Senior (“Mr Pelosi Senior”).  He enjoyed beneficial ownership of the relevant companies.  As at the date of the administration of the companies in August 2011 he was the sole director of Oceancrown and Loanwell.  He also acted as a shadow director of Questway.  His son, Mr Pelosi Junior is the sole shareholder and director of Stonegale.  A secured facility in the region of £17.3 million had been made available to Oceancrown by Anglo Irish Bank (“AIB”).  That debt was subsequently assigned by AIB to Hadrian Sarl.  The other companies in the group, including Loanwell and Questway had cross-guaranteed the debt.

[7]        The group was involved in the development and letting of commercial and residential properties.  Mr Pelosi Senior had effective control of all the companies, which were operated as one enterprise.  The various companies operated on the basis of one bank account with the Bank of Scotland in the name of Questway. 

[8]        The challenges made by the pursuers related to certain property transfers involving Oceancrown, Loanwell, Questway, Stonegale, Mr Pelosi Junior and Strathcroft Limited (“Strathcroft”).  At the time Strathcroft was 99% owned by Mr Pelosi Senior (it later became wholly owned by him).  The sole nominal director of Strathcroft was Mr John Anderson.  Stonegale was wholly owned by Mr Pelosi Junior. 

[9]        Oceancrown owned a commercial property at 278 Glasgow Road, Rutherglen.  Prior to 10 November 2010 Mr Pelosi Senior had concluded an agreement with Clyde Gateway Development Limited (“Clyde Gateway”) for the sale and purchase of that property.  On 10 November 2010 Oceancrown disponed 278 Glasgow Road to Strathcroft for a consideration recorded as being £762,000.  On the same day Strathcroft disponed the same property to Clyde Gateway for £2,100,000 plus VAT of £367,500.  Both dispositions referred to a date of entry of 16 November 2010.  From the perspective of AIB, the sale of 278 Glasgow Road was part of a wider series of property transfers which also involved 110, 210 and 260 Glasgow Road, and 64 Roslea Drive, Glasgow.  AIB held standard securities over all these properties.  On 19 August 2010 Mr Robert Frame, solicitor of Miller Beckett and Jackson, a firm of solicitors based in Glasgow, wrote on behalf of the sellers to AIB’s solicitor (Mr James Gillespie of Messrs McClure & Naismith).  The letter included details of the “relevant sale price” of the Glasgow Road properties as follows: 278 Glasgow Road - £762,000;  210 Glasgow Road - £934,000;  260 Glasgow Road - £450,000;  110 Glasgow Road - £200,000.  Mr Frame stated “my clients are keen to settle as soon as possible, but accept that it may be next week before the sanction has been obtained from the bank’s credit committee”.  On 11 November 2010 Mr Gillespie wrote to the bank in connection with the properties’ release from AIB’s security.   He told AIB that he understood that these properties were to be sold and that discharges may be delivered “in exchange for the free proceeds of sale being remitted to you”.  He enclosed a table showing the following:  278 Glasgow Road – Owner – Oceancrown – sale price £762,000;  210 Glasgow Road – Owner - Loanwell - £934,000;  260 Glasgow Road – Owner - Oceancrown - £450,000;  110 Glasgow Road – Owner - Oceancrown - £200,000;  64 Roslea Drive – Owner - Questway - £68,000.  The purported sale price for the properties totalled £2.414 million.  Mr Gillespie informed AIB that he had been “advised that the sellers’ solicitor will send me the sum of £2,392,000 as free sale proceeds”.    He enclosed five separate discharges and asked for them to be executed and returned to him with full particulars of execution.  The discharges were to be released only in exchange for the free sale proceeds for each property.   On 16 November 2010 Mr Frame received a letter signed by Mr John Anderson on behalf of Questway stating that the letter could be accepted as authority to send to AIB the sum of £2,414,000 in respect of the purchase of the Glasgow Road properties at numbers 278, 110, 210 and 260, plus that at 64 Roslea Drive.  Once AIB received the funds, the executed discharges were delivered, all as agreed between Mr Frame and Mr Gillespie.  Unknown to Mr Gillespie, by then 278 Glasgow Road had been disponed to Strathcroft and then to Clyde Gateway for a sum in excess of £2.4 million,  not the £762,000 mentioned in the correspondence.  Subsequently 210, 260 and 110 Glasgow Road were disponed to Stonegale, and 64 Roslea Drive to Mr Pelosi junior.  The dispositions in respect of those subjects were executed on 24 November 2010, with a date of entry given as 16 November 2010.  They recorded that the consideration for each property was as set out in the above table, making a total of £1,652,000.  In fact no money was paid for them.  The following year 64 Roslea Drive was purchased from Mr Pelosi junior by a Mr John Lazari for £125,000. 

[10]      It is the dispositions of 210, 260 and 110 Glasgow Road and 64 Roslea Drive which are challenged by the pursuers as alienations not made for adequate consideration. 

[11]      There was no dispute that the funds remitted to AIB came from the purchase price paid by Clyde Gateway to Strathcroft for 278 Glasgow Road.  Investigations by the pursuers indicated that the VAT element on the sale of 278 Glasgow Road had not been paid to HM Revenue and Customs.

[12]      Notwithstanding the contract with Clyde Gateway, the information available to AIB was that 278 Glasgow Road was being sold for a sum in line with its valuation at £762,000.  AIB was never informed of the contemporaneous sale for the larger sum.  Had AIB known that a sum in excess of £2.4 million was being paid for 278 Glasgow Road, it would not have discharged the securities over the other properties unless both the true purchase price of 278 Glasgow Road and the value of the other properties was paid to AIB. 

[13]      The open market value of the other properties as at November 2010 was agreed by parties to have been as follows:

110 Glasgow Road - £150,000;

210 Glasgow Road - £860,000;

260 Glasgow Road - £450,000; and

64 Roslea Drive - £65,000.


Evidence rejected by the Lord Ordinary

[14]      Among the witnesses who gave evidence before the Lord Ordinary was Mr Pelosi Junior (Mr Pelosi Senior did not give evidence).  The evidence given by Mr Pelosi Junior included evidence to the effect that in order that Stonegale could purchase the properties at Glasgow Road, Strathcroft had loaned Stonegale the sum of £1.584 million.  A document bearing to be the relevant loan agreement was produced.  The Lord Ordinary  records in his opinion that much of the proof was devoted to the issue of whether the loan agreement was a genuine and valid document.  For the reasons he gives in his opinion, the Lord Ordinary concluded that the loan agreement was a sham.  He rejected the evidence of Mr Pelosi Junior on this (and other) matters. 



Defenders and reclaimers’ first speech
[15]      Mr Fairley QC began by identifying the issue at proof as being whether the alienations of the properties by Oceancrown, Loanwell and Questway had been made for adequate consideration.  He reminded the court that there was a group facility of approximately £17 million which was the subject of cross-guarantees by the group companies albeit that details of the guarantees had not been explored in evidence.  The three companies’ obligations to AIB had been secured by standard securities.  These had been discharged in order to facilitate the transfers to Stonegale and Mr Pelosi Junior.  The defenders did not challenge the findings of primary fact by the Lord Ordinary but the case was not about a fraudulent scheme and it was not about a sham loan agreement.  If there had been any misrepresentation by Mr Pelosi Senior, Mr Fairley did not accept that it had been fraudulent.  The Lord Ordinary had fallen into error in two respects.  The first was to regard AIB’s state of knowledge as in any way relevant to the question as to whether consideration had been provided for the properties.  The second was to regard the fact that the consideration had been paid to AIB by Strathcroft (as opposed to Stonegale and Mr Pelosi Junior) was necessarily destructive of the position put forward by way of defence.

[16]      In summary the defenders’ position was that in November 2010 Strathcroft had provided a consideration representing at least the open market value of the four properties.  The sum had been paid to the secured creditor and in return for that the standard securities were discharged enabling the properties to be disponed to the defenders.  The payment made to AIB had the effect of reducing the indebtedness of Oceancrown, that being indebtedness in respect of which Loanwell and Questway were guarantors.  That the consideration was paid by a party other than the disponee of the respective properties did not affect its status as “consideration”:  Phillips v Brewin Dolphin [2001] 1 WLR 143 at paragraph 20.  Insofar as the consideration was in excess of the open market values of the respective properties, it was “adequate” in terms of section 242(4)(b) of the 1986 Act.  The purpose of the payment to AIB had been to secure the discharge of the standard securities over the properties in order to facilitate their alienation unencumbered by securities.  There was thus a nexus between the payment of consideration and the acts of alienation which followed.  Whatever AIB may have thought was happening, in fact it received full value for the discharge of the securities.  The pursuers may have had a remedy in respect of the property at 278 Glasgow Road but they had not chosen to pursue it.  The Lord Ordinary was in error in failing to see that in trying to take section 242 into areas where it should not go, the pursuers were pursuing the wrong remedy.  The word “consideration” was not defined in the Act and accordingly must be given its ordinary meaning as something which is given or surrendered in return for something else:  MacFadyen’s Trustee v MacFadyen 1994 SC 416 at 421F.  Consideration therefore could include the assumption of a debt or the discharge of a debt.  The question was whether the value given out was at least equal to the value received:  Re MC Bacon Ltd [1990] BCLC 324 at 340.  The value received should be assessed from the perspective of the companies which had alienated the properties.  The value received was the reduction in their liability as either debtor or guarantor in respect of the facility.  The value transferred was the then current market value of the relevant heritage.  It did not matter that the consideration had been provided by a party other than the transferee as long as the consideration was connected to the transfer.  Accordingly the Lord Ordinary had been wrong to conclude that no money had been paid for the properties.  Rather, in excess of £2.4 million had been paid to AIB.  What the Lord Ordinary had done was to use the inadequacy of the consideration paid by Strathcroft to Oceancrown for 278 Glasgow Road to produce an inadequacy of consideration in respect of the other properties.  The pursuers were seeking to maintain the benefit of the transaction while at the same time seeking to recover the properties.  This is double counting.  Thus, the Lord Ordinary was in error in holding that the defenders had failed to discharge the burden of showing that adequate consideration had been paid in respect of the alienation of each of the four properties.


Pursuers and respondents

[17]      Mr Keen QC, on behalf of the pursuers and respondents, began his submissions by referring to the passage in the speech of Lord Scott in Phillips v Brewin Dolphin Bell Lawrie Limited supra at 153, where his Lordship states that reality should be given precedence over speculation.  Mr Keen then invited the court to consider what the transactions involved.  On the morning of 10 November 2010 Oceancrown owned five properties.  Surveyors had estimated their value at approximately £2.4 million.  However, Oceancrown had a bargain to sell one of these properties (278 Glasgow Road) for the sum of £2.4 million.  The value of the other four properties was approximately £1.6 million.  On the afternoon of 10 November 2010, having completed the sale of 278 Glasgow Road, Oceancrown had £2.4 million in cash and properties valued at £1.6 million.  Thereafter Oceancrown transferred the four other properties to the defenders for nil consideration.  Oceancrown was left with £2.4 million in cash and no properties.  Realising that the alienations of the four properties might be challenged (for example by auditors), Oceancrown put a false entry in its accounts misrepresenting the £2.4 million which had been received in respect of the sale of 278 Glasgow Road as being the consideration for the disposal of all five properties.  By 24 November 2010, the date upon which the alienations were made, the defenders had properties worth £1.6 million for which no consideration had been paid.  When investigation was made, the books of Oceancrown showed that it had received £2.4 million for all five properties.  The defenders claimed to have purchased the four properties from Oceancrown for £1.6 million.  When asked where they got the money for the purchase, they said that they had borrowed it on the terms set out in the loan agreement.  However, when matters proceeded to proof in the present action, as the evidence unfolded, counsel for the defenders realised that the entry in the books of Oceancrown was a misrepresentation and that the loan agreement was a sham.  He thereupon ignored the case as pled for the defenders and the evidence led on behalf of the defenders in support of that case and, as the Lord Ordinary put it, at the eleventh hour, advanced another theory of consideration entirely.  This new theory was that in November 2010 the open market value of the five properties was estimated at £2.4 million.  A bargain had been made for the sale of 278 Glasgow Road at a price of £2.4 million, but Oceancrown misrepresented the £2.4 million received for the sale of 278 as the proceeds of sale of all five properties.  Thus, by paying £2.4 million to AIB in order to obtain the discharge of the standard securities, Oceancrown facilitated the transfer of the four properties to the defenders.  There was therefore, it was argued on behalf of the defenders, a nexus between payment of the £2.4 million and the transfer of the four properties to the defenders.  What was that nexus? asked Mr Keen rhetorically.  It was the false entry in the books of Oceancrown purporting to show the receipt of £2.4 million in payment for all five properties which facilitated the transfer of the four properties to the defenders for nil consideration.  The introduction into the narrative of bank lending, standard securities, group borrowing, inter-company guarantees, misrepresentations both to AIB and AIB’s solicitor, the interposition of a shelf company (Strathcroft) to disguise the transfer and a sham loan document, does not change the reality:  whereas on 10 November 2010 Oceancrown owned 278 Glasgow Road, a property for which Clyde Gateway was prepared to pay £2.4 million and Oceancrown, Loanwell and Questway owned four other properties which had been valued at £1.6 million, by 24 November 2010, the defenders had ended up with the  four properties without having paid any consideration.

[18]      The discharge of the standard securities on 10 November 2010 did not constitute a consideration for the transfer of the properties on 24 November 2010.  Once the standard securities were discharged it was open to the companies to have enjoyed the benefit of unencumbered ownership.  Had floating charges granted by the three companies crystallised anytime between 10 and 24 November 2010 they would have caught the four properties.

[19]      The defenders’ case as pled was that adequate consideration was provided by payment of the purchase price of the properties.  The defenders’ case as argued was that Strathcroft had been interposed, that Strathcroft had passed monies to AIB, that AIB had been induced to discharge the standard securities on payment of a sum equal to the open market valuations of the five properties and that adequate consideration had been supplied by the transient reduction in debt in respect of which Oceancrown was debtor and the other companies’ guarantors.  Had the case as argued been the case as pled, a whole raft of issues would have arisen as to the nature of the debt and the exact terms of the guarantees and standard securities.  Such obligations as Loanwell and Questway had would appear to have been contingent.  These companies may never have been called upon to meet them.  It was to be remembered that simply discharging a standard security does not constitute consideration:  MC Bacon Limited supra at 340.  However, these issues did not appear to arise and were not explored because the defenders had made a different case, which they had made no attempt to amend. 

[20]      Mr Keen submitted that the court should only depart from the Lord Ordinary’s conclusion if it can be shown that he had been guilty of what is described in Housen v Nikolaisen [2002] 2 SCR 235 as “palpable and over-riding error”.  In fact, the Lord Ordinary made no error.  It had been relevant for him to consider the state of AIB’s knowledge in that it explained why AIB had been prepared to discharge the standard securities, so facilitating the transfer of the properties, as disburdened.  The Lord Ordinary fully understood that the issue was whether the challenged alienations had been made for adequate consideration as required by section 242(4)(b) and the defenders’ argument that the relevant consideration had been supplied by the reduction of Oceancrown’s indebtedness to AIB.  That the sum paid to AIB was equivalent to the aggregate of the valuations which had been carried out in relation to the five properties, was of no necessary relevance as to whether the companies had received adequate consideration for the transfers.  The Lord Ordinary had made the finding of primary fact, recorded at paragraph 40 of his opinion, that: “No one paid anything for 110, 210, 260 Glasgow Road and 64 Roselea Drive”.  He had been fully entitled to do so;  it was a finding based on the evidence, as was the finding at paragraph 42 that: “No party gave the sellers anything in return for the conveyances under challenge”.  While he referred to the companies as “sellers”, he made clear in paragraph 42 that he was referring to “gratuitous sales”.  It had never been argued that the Lord Ordinary was not entitled to make these findings or the finding that Strathcroft had been involved in the matter only in order to provide a short-lived intermediary between Oceancrown and Clyde Gateway in respect of the sale of 278 Glasgow Road.  Indeed it was understood by those on Mr Keen’s side of the bar that the only piece of business Strathcroft had ever conducted was this transaction.  No error in law on the part of the Lord Ordinary had been identified.  There was simply no basis upon which the court could interfere with his determination. 


Defenders’ second speech

[21]      In a brief second speech Mr Fairley reiterated that he was making no challenge to the primary facts found by the Lord Ordinary.  Indeed, he was founding on what had been said by the pursuers’ witnesses.  What he was challenging was a finding of mixed fact and law in respect of which an appellate court is in the same position to make an assessment as is a court of first instance:  Benmax v Austin Motor Co Ltd [1955] AC 370 at 375.  It could not be said that no money had changed hands.  It was to be borne in mind that there were three companies here, not one as seemed to be suggested by Mr Keen.  There had been evidence that, as found by the Lord Ordinary at paragraph 39 of his opinion, the payment to AIB had reduced Oceancrown’s indebtedness.  While precise quantification of the benefit to the companies might be difficult, Loanwell and Questway had the benefit of the group facility.  Discharge of the standard securities restored full value to the properties.



[22]      In these three reclaiming motions the question for the court is whether the Lord Ordinary was entitled to hold, as he has, that the respective defenders, Stonegale and Mr Pelosi Junior, had failed to establish that the alienations constituted by the conveyances by Oceancrown, Loanwell and Questway in favour of the defenders of the four properties at 110, 210 and 260 Glasgow Road and 64 Roselea Drive were made for adequate consideration.

[23]      What is meant by consideration in this context was not controversial.  Parties were content to adopt what was said by Lord McCluskey delivering the Opinion of the Court in MacFadyen’s Trustee v MacFadyen supra at 421E-H:

“The word ‘consideration’ is not defined in the Act and we consider that it must be given its ordinary meaning as something which is given, or surrendered, in return for something else….A consideration appears to us to acquire its character as a consideration not later than the time when the giving or surrendering takes place.  In the context of bankruptcy law, the bankrupt debtor must be regarded as a trustee for the creditors in respect of such of his assets as are under his control.  In that context, it is our view that a consideration must mean something of material or patrimonial value which could be vindicated in a legal process, whether by being claimed or possibly by being pled in answer to another’s claim”.


Thus, there is scope for a variety of transactions whereby value is given in return for, for example, a conveyance of property, constituting consideration.  The discharge or reduction of a debt can amount to consideration.  However, the discharge of a heritable security without the discharge of the associated obligation does not amount to consideration anymore than the granting of a security amounts to an alienation:  cf. Re MC Bacon Ltd supra at 340. 

[24]      A straightforward way of giving consideration is to pay cash and payment of cash in a sum equal to the current open market value of the alienated property, as it has been assessed by an independent valuer, is a very strong indication of the giving of adequate consideration.  That was the defenders’ case on record in each of the three actions.  For example, it is averred that “[Stonegale] paid (i) the sum of Two Hundred Thousand Pounds (£200,000) Sterling to Oceancrown in respect of 110 Glasgow Road”.  Although not strictly speaking material to Stonegale’s defence, with a view to providing colour, its averments include the explanation that:  “[Stonegale] was loaned the sum of One Million Five Hundred and Eighty Four Thousand pounds (£1,584,000) Sterling by [Strathcroft].  The purpose of the loan was to enable [Stonegale] to purchase the properties”.  However, the defenders failed to prove either these or the corresponding averments relating to the other properties.  Indeed, one can go further.  By the end of the proof before the Lord Ordinary Stonegale’s averments, with which Mr Pelosi Junior’s pleadings were aligned, were found to be complete fiction. 

[25]      Faced with the difficulty that the defences pled had failed evidentially, Mr Fairley on behalf of the defenders, both before the Lord Ordinary and before this court, presented an alternative basis upon which he said that adequate consideration had been provided in respect of alienation of the properties.  The consideration on this alternative basis was the payment to AIB of £2.4 million.  AIB was the creditor of Oceancrown and therefore payment to AIB reduced the extent of AIB’s borrowing.  That gave value to Oceancrown but it also gave value to Loanwell and Questway as they were guarantors of the debt which had been reduced.  It was of no consequence that the source of the payment (at least on Mr Fairley’s analysis) was Strathcroft, as opposed to Stonegale or Mr Pelosi Junior, or that payment was made directly to AIB as opposed to the companies. 

[26]      The Lord Ordinary was prepared to consider whether adequate consideration had been provided on this alternative basis.  In our opinion he was right to do so.  On an objective assessment of the facts a court may be able to conclude that an alienation has been made for adequate consideration, irrespective of what individuals thought they were doing at the relevant time.  But that is not to say that the subjective element will necessarily be irrelevant.  It may be very relevant if only because the alienation must be for adequate consideration.  Fundamentally, what is envisaged by section 242(4)(b) is a voluntary transaction for the exchange of, on the one hand, a part of the company’s property and, on the other, something else of equivalent patrimonial value.  In any given case, the elements of transaction and fixing of equivalent value but, in particular, the exchange of one thing for another, are all likely to be informed by knowing what the relevant actors intended at the relevant time.  There was force in Mr Keen’s observation that if the defenders in the present case did not think that consideration was being given why should the court think so?  Here the relevant actors were Mr Pelosi Senior, whose intention was to divert assets away from the group’s creditors, those who were acting simply as Mr Pelosi Senior’s tools and those whom Mr Pelosi Senior had misled.  It may therefore be said that the whole motivation for the transaction was the diversion of assets away from creditors.  It is unnecessary to observe that the avoidance of the diversion of a company’s assets away from its creditors is exactly what section 242 of the 1986 Act is intended to prevent.

[27]      Mr Fairley was very much aware that he had to satisfy the court that the relevant alienations were made for the relevant consideration.  He referred to the causal connection which the section requires as a “nexus”.  The nexus he relied on was between the alienation of the properties and the discharge of the standard securities over them.  The discharge occurred because AIB had received a payment of £2.4 million, a sum equivalent to the open market valuations of all five properties.  Given that nexus, submitted Mr Fairley, there was sufficient to discharge the onus imposed on the defenders by section 242(4)(b).  That AIB only agreed to discharge the standard securities over the four properties because it was unaware of the price Clyde Gateway was prepared to pay for 278 Glasgow Road was neither here nor there. 

[28]      In our opinion, Mr Fairley’s submission cannot be given effect, and that for a number of reasons.  First there are the Lord Ordinary’s unchallenged findings in fact:

“No one paid anything for 110, 210, 260 Glasgow Road and 64 Roselea Drive” (Lord Ordinary’s opinion, paragraph 40)





“No party gave the sellers anything in return for the conveyances under challenge.  Any value received was the value paid in respect of number 278.  That is what was transferred to [AIB’s solicitors].  In my view nothing else alters that basic fact.  All that happened was that Strathcroft, on the direction of Mr Pelosi Senior, paid the bank monies which were designed to, and did persuade the bank to discharge the standard securities over the five properties, all in order to facilitate the subsequent gratuitous sales.  Neither that payment nor any consequential reduction in indebtedness, was in consideration for the subsequent transactions.  It was a mechanism for allowing the inter-company transfers which it was hoped would achieve the retention of the ‘profit’ on 278 within the group (and regarding Roselea Drive, Mr Pelosi Junior) – and free of the bank’s securities”.

(Lord Ordinary’s opinion, paragraph 42).


[29]      Now, Mr Fairley emphasised that what was being challenged was a finding of mixed fact and law which was amenable to assessment by the appellate court as by a court of first instance:  Benmax v Austin Motor Co Ltd supra at 375.  We accept that whether an alienation was for adequate consideration is a question of mixed fact and law.  For present purposes, we also accept the applicability of what was said by Lord Reid in Benmax, although Mr Keen did commend the apparently rather different approach of the Supreme Court of Canada in Housen v Nikolaisen.  However, the question of mixed fact and law is one that is informed by the findings of primary fact.  Here the finding that no party gave the sellers anything in return for the conveyances under challenge comes very close indeed to determining the matter. 

[30]      In any event, it is not disputed that at the date of alienation, the companies as owners of the properties, had no obligation, express or implied, to dispose of the subjects in any particular way.  They could have continued to hold them.  They could have sold them to anyone.  In the event they alienated them and they got nothing in return.

[31]      Mr Fairley’s alternative basis upon which he seeks to find a passing of consideration for the challenged alienations  is an artificial construct.  It bears no more relation to reality than the defenders’ averments about sales.  It does not reflect the intention of the controlling mind of the companies which made the alienations (Mr Pelosi Senior) or of the controlling mind of the company and individual (Mr Pelosi Junior) who received the alienations.  Matters become even clearer when one disregards the device of interposing Strathcroft between Oceancrown and Clyde Gateway in respect of the transfer of 278 Glasgow Road.  Clyde Gateway paid £2.4 million for the transfer of 278 Glasgow Road from Oceancrown.  That sum was received by AIB in reduction of Oceancrown’s indebtedness.  What followed were what the Lord Ordinary was fully entitled to describe as “gratuitous sales” of the other four properties.  Looking at matters from the perspective of the companies which alienated their properties, as Mr Fairley encouraged the court to do, what did they receive?  It is difficult to disagree with the Lord Ordinary’s answer to that question:  nothing at all. 

[32]      Given that the alienation of the four properties within the relevant period was admitted, it was for the defenders to show (a) that consideration had been given as a counterpart and (b) that the patrimonial value of the consideration was such that it should be held adequate.  True, the evidence showed that money changed hands (as Mr Fairley put it) but how did that constitute adequate consideration in the hands of Oceancrown in respect of its alienation of 110 or 260 Glasgow Road or Loanwell in respect of 210 Glasgow Road or Questway in respect of 64 Roselea Drive?  Oceancrown may be taken to receive £2.4 million but in disponing 278 Glasgow Road it had conveyed a property which its controlling director had prior to the conveyance agreed to sell at that price.  In the absence of further evidence, Oceancrown can be regarded as having received adequate consideration for 278 Glasgow Road, and that transaction is not of course challenged, but as having received nothing at all for 110 or 260 Glasgow Road.  Loanwell and Questway similarly received nothing.  The argument was that the consideration for Loanwell’s alienation of 210 Glasgow Road and Questway’s alienation of 64 Roselea Drive was the benefit of the reduction of a debt of which they were guarantors.  A difficulty about that is that there was no detailed evidence about the terms upon which the companies may have granted guarantees.  Moreover, as Mr Keen emphasised, a guarantee is a contingent liability.  The adequacy of consideration is to be determined as at the date it is given:  MacFadyen’s Trustee v MacFadyen supra.  While making the incidence of a guarantee less onerous may amount to consideration, attaching a value to that for the purpose of determining whether the consideration is adequate is likely to be complex and difficult.  We would accept what Lord Drummond Young said in Jackson v The Royal Bank of Scotland plc 2002 SLT 1123 at 1128D:  “if the transaction as a whole appears commercial it should generally be assumed that the consideration is adequate”.  That, however, has no application here.  The transactions under consideration were devices for the diversion of assets from creditors, facilitated by a misrepresentation to the banker of the companies which were involved.  They were accordingly not commercial transactions.  Nothing therefore can be assumed and if, despite their non-commercial nature they are to be said to have had the result that adequate consideration passed, then that had to be proved.  That the defenders singularly failed to do.

[33]      We shall refuse all three reclaiming motions.