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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Mercer v Heart Of Midlothian Plc [2001] ScotCS 135 (31 May 2001) URL: http://www.bailii.org/scot/cases/ScotCS/2001/135.html Cite as: [2001] ScotCS 135

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[1] In 1994 the pursuer was the majority shareholder in and the Chairman of the defenders, who were then called Heart of Midlothian Football Club plc. At a meeting held on 1 June 1994 the Board of the defenders resolved to appoint the pursuer to the position of Life President. In a subsequent exchange of correspondence dated 10 and 12 June 1994, agreement was reached that the position would be that of Honorary Life President, and that as Honorary Life President the pursuer would have certain privileges, including entitlement, on match days, to (i) two seats in the third row of the directors' box at Tynecastle Stadium, (ii) access for himself and a guest to the Boardroom at Tynecastle Stadium and (iii) a pass to the car park at Tynecastle Stadium. Subsequently in 1997 the Board of the defenders purported to withdraw those privileges. In this action the pursuer seeks declarator that he is Honorary Life President of the defenders and is entitled to those privileges, and interdict against the defenders from preventing his exercise of them. The defenders have lodged a counterclaim concluding for reduction of the relevant part of the minute of the Board meeting held on 1 June 1994 and of the purported agreement in terms of the exchange of letters of 10 and 12 June 1994.

[2] Each party pleads that the pleadings of the other are irrelevant and lacking in specification. The pursuer seeks to stand on the undisputed terms of the agreement reflected in the Board Minute of 1 June 1994 and the correspondence of 10 and 12 June 1994. The defenders contend that the agreement did not comply with the requirements of section 312 of the Companies Act 1985. The action was appointed to the procedure roll in respect of the parties' preliminary pleas.

[3] The pursuer avers that in 1981 he acquired a majority shareholding in the defenders, and that in 1982 he became Chairman. After some narrative of his part in the revival of the defenders' fortunes, he avers that in 1993 he was in ill health, that he announced publicly his intention to sell his shareholding, and that at the same time he and his wife decided to move to live permanently in France. He avers that as at 1 June 1994 negotiations between him and potential purchasers of his shareholding were far advanced. He avers that the Board of the defenders, although aware that his shareholding was for sale, were not involved in the negotiations and were not aware of the stage that they had reached. He then avers:

[4] The relevant part of the Minute of the Board meeting of 1 June 1994 (No. 6/1 of process), which is incorporated in the pursuer's pleadings, is in the following terms:

[5] The pleadings go on to quote from the letter of 10 June 1994 from Mr Porteous to the pursuer (No. 6/2 of process) and from the pursuer's reply dated 12 June 1994 (No. 6/3 of process). The letters are incorporated in the pursuer's pleadings. The letter of 10 June was in inter alia the following terms:

1. That the title should be Honorary Life President. The prefix of the word Honorary is no more than to indicate a position in perpetuity. My understanding is that without the prefix Honorary it could be seen that re-election would need to be held for this particular post and this is something we would not wish to attract.
2. That the Honorary Life President would have the right to wear such official dress as other Directors.
3. The position be intimated to the Scottish Football League and the Scottish Football Association as one of the Club officials and therefore carried in the annual books.
4. Two box seats be made available at Tynecastle in the third row.
5. Access for the Honorary Life President and a guest to the Board Room.
6. The provision of a car park pass.
7. Access to the stadium on non match days subject to permission and subject to reasonable notice being given to the Board of that time and an undertaking given that no effect will be caused on normal business of and at the stadium.
8. The name of the Honorary Life President to be carried on the headed paper to the current Board of Directors design.

The pursuer's reply was in inter alia the following terms:

Although in those documents there is reference both to "the Company" and to "the Club", the debate proceeded on the basis that no distinction was intended, and that both expressions were references to the defenders.

[6] The pursuer's pleadings contain averments about the disposal in two stages of the shareholding in the defenders formerly controlled by the pursuer, but it is unnecessary for present purposes to examine those in detail. The pursuer resigned as Chairman and Director of the defenders on 17 June 1994, and he avers that his appointment as Honorary Life President thereupon took effect. There are also averments in some detail about the circumstances in which the defenders sought to discontinue the position of Honorary Life President and the privileges attached to it, but again it is unnecessary for present purposes to examine those in detail.

[7] The defenders aver that the privileges attaching to the "purported appointment of the pursuer to the position of Life President", and in particular those of them that the pursuer now seeks to establish by declarator, "had, and have, a monetary value. That monetary value is currently £3000 per annum." They further aver:

In the Counterclaim they elaborate the point in the following terms:

[8] Section 312 of the Companies Act 1985 ("the 1985 Act") provides as follows:

[9] Section 312 falls within Part X of the 1985 Act which is headed "Enforcement of Fair Dealing by Directors" in a group of sections sub-headed "Restrictions on directors taking financial advantage". Other provisions of that Part of the 1985 Act were referred to in the course of the debate, but it will be more convenient to quote them, to the extent necessary, in the context of the submissions in which they were mentioned.

[10] The only line of defence advanced by the defenders is that the benefits conferred on the pursuer as Honorary Life President were, in terms of section 312, unlawful because they were not disclosed to the members of the company and approved by the company. Mr Hodge, who appeared for the defenders, accepted at an early stage in his submissions that, if section 312 did not apply, there was no relevant defence to the action and decree de plano would fall to be granted in the pursuer's favour. There were, Mr Hodge submitted, two issues that required to be considered. The first was whether the benefits were conferred "in connection with his retirement from office". The second was whether those benefits amounted to a "payment" within the meaning of section 312.

[11] In introducing his submissions on section 312, Mr Hodge pointed out that the order in which sections 312 to 316 appear in Part X of the 1985 Act is not the order in which they were first enacted. Sections 313 to 316 had their origin in section 82 of the Companies Act 1928 ("the 1928 Act"). The provision now to be found in section 312, however, was first enacted as section 36(1) of the Companies Act 1947 ("the 1947 Act"). The provisions of sections 312 to 316 are all concerned with any payment to a director "by way of compensation for loss of office, or as consideration for or in connection with his retirement from office". Section 313 (previously section 82(1) of the 1928 Act) is concerned with such payments made in the context of a transfer of the undertaking or property of the company. Particulars must be disclosed to the members, and the payment must be approved by the company. Failing such disclosure and approval, the payment is deemed to be received in trust for the company. Section 314 (previously section 82(2) of the 1928 Act) is concerned with payments made in the context of a takeover. The director must take all reasonable steps to secure that particulars are sent to the shareholders and, if the payment is not approved at a meeting of shareholders, the director is deemed to have received it in trust for the selling shareholders (section 315(1)). Section 316(2) (previously section 82(4) of the 1928 Act) provides inter alia that if, in connection with any such transfer as is mentioned in sections 313 to 315, any valuable consideration is given to the director, the money value of the consideration is deemed to have been a payment made to him by way of compensation for loss of office or as consideration for or in connection with his retirement from office. Such was the state of the law when section 36(1) of the 1947 Act (now section 312 of the 1985 Act) was enacted. It was more restricted in scope than the pre-existing provisions in that it covered only payments made to the director by the company, but less restricted in scope in that it was not tied to the specific contexts of transfer of the company's undertaking or property or takeover. At the same time (in 1947) it was made clear that the provisions did not apply to bona fide payments by way of damages for breach of contract or by way of pension (section 36(7) of the 1947 Act, now section 316(3) of the 1985 Act). Mr Hodge also referred to section 320 of the 1985 Act, which prohibits the acquisition by a director of substantial non-cash assets from the company. In that context substantial means having a value of not less than £2000 but (subject to that) exceeding £100,000 or 10% of the company's asset value. To illustrate the context in which that provision was introduced Mr Hodge referred to paragraphs 1.9 and 1.10 of the Law Commission Consultation Paper No. 153/Scottish Law Commission Discussion Paper No. 105 of August 1998. His purpose in doing so was to support the submission that section 320 was not intended as a means of "plugging a gap" in section 312, and that it was not to be inferred from the enactment of section 320 that section 312 covered only payments in cash. A benefit provided to a retiring director might in appropriate circumstances be rendered unlawful both under section 312 and section 320 (Lander v Premier Pict Petroleum Ltd 1997 SLT 1361).

[12] Mr Hodge went on to submit that, on a sound construction of section 312 and a sound view of the circumstances disclosed in the relevant documents, the benefits conferred on the pursuer were conferred by the Board "in connection with" the pursuer's retirement from office. The agreement was reached in anticipation of his retirement as Chairman and Director of the defenders. The motive was at least in part to mark his achievements while in office. There was no clear authority on the meaning of the expression "in connection with" retirement from office. In Taupo Totara Timber Co v Rowe [1978] AC 537 it was held by the Privy Council that the corresponding provision of the New Zealand Companies Act was concerned (a) only with payments to the director in connection with his retirement from office as a director, and not with payments made in connection with termination of employment, and (b) only with uncovenanted payments, and not with those made under a subsisting contractual obligation. So far as those constraints on the scope of the section were concerned, the benefits conferred on the pursuer were within its proper scope. They related to his retirement as a director, not to any termination of employment, and they were not payments due under an already subsisting contract. The phrase "in connection with" was of broader scope than "as consideration for". All that was required was a causal or logical connection between the retirement from office and the payment. Here it was enough that the payment arose upon retirement from office. The temporal coincidence was sufficient.

[13] Mr Hodge then turned to the submission that the benefits conferred on the pursuer constituted a "payment" to him by the defenders. In support of that submission he made four points.

1. "Payment" is capable of meaning payment in kind. In White v Elmdene Estates Ltd [1960] 1 QB 1 at 16, Lord Evershed MR said:

"... the word 'payment' in itself is one which, in an appropriate context, may cover many ways of discharging obligations. It may even (as is well known, although it does not arise in this case) include a discharge, not by money payment at all, but by what is called 'payment in kind'."

2. The history of the relevant provisions suggests that payments in kind were intended to be within the scope of section 312. Section 316(2) of the 1985 Act (and its predecessor, section 82(4) of the 1928 Act) treated the money value of any excess consideration as payment. The deeming provision ("shall be deemed for the purpose of that section to have been a payment made to him by way of compensation for loss of office or as consideration for or in connection with his retirement from office") was concerned not to deem something which was not a payment to be a payment, but rather to deem something which was inherently a payment to be a payment by way of compensation for loss of office etc. When the 1947 Act extended control from the context of the transfer of the company's undertaking or a takeover to the context of a payment made to the director by the company, there was no good reason to exclude non-cash payments from that extended control.
3. The use of the expression "amount" is not a sufficient indication to the contrary. While in one sense "amount" might be said to be indicative of a sum of cash, it was also capable of applying to the value or significance of a non-cash benefit. Section 313(2) also referred to "amount", but that reference required, by virtue of section 316(2), to be capable of application to the value of a non-cash benefit.
4. Policy considerations would suggest that the intention of Parliament was that payments in kind were within the scope of the section, since otherwise circumvention would be easily achieved. The mischief addressed by the section was the giving of a gift to the retiring director without informing the members of the company and obtaining their approval. If the control could be circumvented by giving the gift in a form other than cash, it would be greatly weakened. It would, moreover, be anomalous if a non-cash benefit were prohibited by sections 313 and 314, but not by section 312.

[14] For those reasons, Mr Hodge submitted that the benefits which the Board conferred upon the pursuer were payments of the sort contemplated in section 312, and since they had not been disclosed to the members or approved by the company, they were unlawful. On that ground decree of reduction should be granted in terms of the counterclaim, and decree of declarator as sought by the pursuer should be refused. Mr Hodge recognised that it was an essential part of his case that the benefits had a monetary value. He recognised that that was not admitted by the pursuer. He therefore submitted that if necessary a proof should be allowed on that limited factual issue.

[15] For the pursuer Miss Paterson submitted that what the defenders had done was appoint the pursuer to the post of Honorary Life President. That appointment carried with it certain privileges, including the rights to seats in the directors' box, access to the boardroom and a car park pass. If the defenders were right in submitting that that arrangement was struck at by section 312, so too would be an offer of employment to the retiring director if the employment was to commence on his retirement from office as a director. The issue was whether the offer and acceptance of the position of Honorary Life President was something done "as consideration for or in connection with" the pursuer's retirement from office as a director. The proper approach to that issue was set out by Hudson J in Lincoln Mills (Aust.) Ltd v Gough [1964] VR 193 at 199:

The only connection with the pursuer's retirement from office as a director was that the appointment as Honorary Life President was to take effect at the same time as that retirement. The arrangement was not a unilateral one involving the mere conferring of a benefit on the pursuer. His acceptance of the appointment was sought and obtained. It was in part a recognition of his continuing financial support of the defenders. It was clear that a continuing connection between the pursuer and the defenders was contemplated. For section 312 to apply there required to be a connection between the retirement from office and the payment made which went beyond mere temporal coincidence. There had to be a relationship between the retirement and the payment. Here there was none; the payment related to the future occupation by the pursuer of the position of Honorary Life President. The pursuer could not resign from the position of Honorary Life President and claim continuing entitlement to the related benefits. The title and the benefits formed a package that was forward-looking, rather than retrospective consideration for or payment in respect of his retirement from office.

[16] Miss Paterson further submitted that the benefits which were in issue did not constitute "payment" within the meaning of section 312. No cash changed hands. No expenditure was necessarily incurred by the defenders. Assuming for the purpose of argument that the defenders were right in saying that the benefits had an annual value of £3000, how was that to be translated into a "payment" of which notice could be given in advance to the members of the company and which the company could approve in advance? If it was not possible to ascribe a present amount to the benefits, at the time the decision to make them was conferred, how could they be equated to a "payment"? The terms of section 320 were relevant in considering what was meant by the reference to a "payment" in section 312. Section 320 prevented a company from entering into an arrangement by which a "non cash asset" of more than the specified value was acquired by a director. Section 739(2) of the 1985 Act provided that a reference to the transfer or acquisition of a "non-cash asset" included the creation of inter alia a right over any property. The benefits mentioned in the conclusion constituted rights over the defenders' property in Tynecastle Stadium (Micro Leisure Ltd v County Properties & Developments Ltd 1999 SC 501 per Lord Hamilton at 506F). The benefits in question were thus, if anything, a non-cash asset rather than a payment. They were therefore subject to the control of section 320, but not of section 312.

[17] In addition Miss Paterson suggested that if the benefits in question fell within the scope of section 312, they would also fall within the scope of section 232 and on that account require to be included in information given in the company's accounts. Approval of the accounts by the company would therefore constitute sufficient approval of the benefits for the purpose of section 312.

[18] In response to Miss Paterson's submission based on section 232, Mr Hodge pointed out that that section was not co-extensive in scope with section 312. Section 232 referred only to compensation for loss of office, whereas section 312 also referred to payments as consideration for or in connection with retirement from office. Accounts were merely laid before the company in general meeting, having been approved by the Board (section 233(1)). Section 312 contemplated approval of the payment before it was made, whereas the accounts would reflect payments already made. For all those reasons the submission that inclusion of the payment in the accounts would lead to disclosure and approval as required by section 312 was ill-founded.

[19] In response to the argument based on section 320, Mr Hodge submitted that it was of no moment that the benefit might be characterised as a non-cash benefit. That did not prevent its being a payment in terms of section 312. There was nothing in the legislative history to suggest that section 320 (the predecessor of which was first enacted in 1980) was intended to fill a gap left by section 312, or that it was legitimate to infer from the enactment of section 320 that section 312 was to be construed as applying only to cash payments.

[20] In relation to the argument that the benefits were not "in connection with" the pursuer's retirement because they related to the post of Honorary Life President, Mr Hodge submitted that there was no suggestion that that post imposed any duties on the pursuer. There was no basis for viewing the benefits as a quid pro quo for any post-retirement activity on his part. The pursuer's position as Honorary Life President was distinguishable from that of a retiring director who was offered employment in some other capacity, and who received payment as consideration for the performance of the duties of that employment. The benefits conferred on the pursuer were part of a reward for past service as director and Chairman, and were thus conferred "in connection with" his retirement from office as a director.

[21] Mr Jones, senior counsel for the pursuer, submitted that the proper approach to the issue which required to be determined in this case was that set out by Hudson J in Lincoln Mills. Attention should not be confined to the mere fact of temporal coincidence between the conferring of the benefits on the pursuer and his retirement from office as a director. It was necessary to look to the nature of the benefits and the circumstances in which they were conferred. The agreement was not, by its nature, a mere conferring of benefit on the pursuer. It was clear from the documentation that what took place was the offer and acceptance of a position which implied a continuing commitment on the part of the pursuer to the defenders, and the attachment to that position of certain "conditions and privileges". It appeared that it was, at the time, an attractive proposition to both parties. It was evident from paragraph 3 of the letter of 10 June that it was attractive to the defenders that the pursuer, given his high public profile, should continue to be seen as an official of the defenders. Paragraph 8 reinforced that view; the presence of the pursuer's name on the letterhead was of benefit to the defenders, and the pursuer's consent to that aspect of the arrangement was necessary. The reference in the penultimate paragraph of the letter of 12 June to "continuing ... support" reinforced the inference of reciprocal obligations. The whole picture was of an arrangement which was to the mutual benefit of the parties.

[22] Mr Jones further submitted that when section 312 referred to "payment" the natural meaning of the statutory language was that it contemplated a money payment. If a non-monetary benefit had been intended to be covered, one would have expected reference not simply to "amount" but also to "value". Even if the language of the section was capable of covering a non-monetary "payment", it was not wide enough to cover the benefits conferred on the pursuer. It was not disputed by the defenders that the policy and purpose of the section was to safeguard the company's funds. The members' interest in being informed of the payment is to enable them to know to what extent its impact will be to deplete the company's resources. The members have no legitimate interest in the value of the "payment" to the former director, if that value does not reflect a diminution of the resources of the company. In this case the defenders offer to prove that the benefits have a monetary value, but not that by conferring those benefits the resources of the company are to any extent depleted. The nature of the benefits was not such as to diminish the funds of the company. Thus, even if it be accepted that the benefits have a monetary value to the recipient, that does not support the inference that they constitute a "payment" by the company.

[23] In my opinion the issue which requires to be determined in this case is whether the benefits conferred by the defenders on the pursuer in terms of the agreement constituted by the minute of the Board meeting of 1 June 1994 and the subsequent exchange of correspondence of 10 and 12 June 1994 constituted a "payment" by the defenders to the pursuer which was made "in connection with" the retirement of the pursuer from office as a director of the defenders. Although the issue is capable of being addressed in two parts, namely (a) whether there was a "payment" and (b) whether it was "in connection with" the retirement, I am of opinion that it is preferable not to treat the two parts as wholly severable.

[24] Before turning to the principal issue, it is convenient to deal with a number of subsidiary aspects of the submissions. First, there is, in my opinion, no merit in Miss Paterson's submission that the effect of section 232 of the 1985 Act is that the benefits conferred on the pursuer may be taken to have been approved by the company in the way required by section 312. There are, in my view, a number of reasons for so concluding. In the first place section 232 relates only to payments made as compensation for loss of office, whereas the defenders did not maintain in argument the suggestion in their pleadings that the benefits made available to the pursuer came within the scope of section 312 on account of constituting compensation for loss of office. The only basis on which Mr Hodge maintained that they did so was as payments "in connection with" retirement from office as a director. Secondly, section 312 contemplates disclosure of particulars to the members and approval by the company in advance of the making of the payment ("the proposed payment"), whereas the accounts would only reflect the payment ex post facto. Thirdly, accounts are approved by the Board, and only laid before the company in general meeting. It was not submitted on the pursuer's behalf that there was any other basis on which it might be maintained that the requirements of section 312, if they fell to be satisfied, had been satisfied.

[25] Nor do I consider that there is any merit in the argument that the benefits conferred on the pursuer involved his acquisition of a non-cash asset from the defenders, and accordingly were only open to challenge if they contravened the requirements of section 320 of the 1985 Act. In the first place, it is in my view questionable whether the benefits in question did constitute a "non-cash asset". It seems to me that they constituted a personal right against the defenders rather than a right over property in the form of Tynecastle Stadium. Secondly, I do not consider that it is legitimate to regard the scope of section 312 as restricted by the scope of section 320. I accept Mr Hodge's submission that there is nothing in the legislative history to justify the inference that section 320 was designed to fill a lacuna left by section 312. While it remains to be considered whether the benefits conferred on the pursuer can be regarded as constituting a "payment" within the meaning of section 312, I do not consider that that question can be answered in the negative simply by holding that the benefits fell within the scope of section 320.

[26] In considering the nature of the payments with which section 312 is concerned, it is in my view important to bear in mind the whole language of the section, and not to isolate the particular phrase relied upon in this case. The section deals with (i) payments by way of compensation for loss of office, (ii) payments as consideration for retirement from office as a director and (iii) payments in connection with such retirement from office. Mr Hodge confined his submission to the third category. In so doing, he implicitly recognised that there was no basis for contending that the benefits conferred on the pursuer fell into either of the first two categories. His submission was that it was proper to infer, from the fact that the section deals with all three categories, that the third category covers cases that do not fall into the first two. So far as it goes, that is, in my view, correct. The third category, however, in my view derives some colour from the first two. I derive some assistance from the two cases which were cited. Taupo Totara in my view establishes two points. The first is that the section is not concerned with payments made in connection with the termination of some position other than the office of director, such as employment in a particular management capacity. That is of no relevance in the present case. The second is that the section is not concerned with "covenanted payments". The meaning of that expression was not fully explored in Taupo Totara. It seems to me to be plain that payments contractually due in terms of an agreement entered into at the time when the director took up office are not struck at by the section. On the other hand, I do not think that it is sufficient, to take the case out of the scope of the section, that the payment is made in accordance with a contract entered into immediately before the director resigned office as such. If that were so, the scope for evasion of the control which the section was designed to exercise would be virtually unlimited. The present case cannot, therefore, in my view be regarded as a covenanted payment falling outwith the scope of the section simply because the agreement was finalised on 12 June 1994 but the pursuer did not resign as a director until 17 June 1994. Between the two extremes, it seems to me to be likely that any agreement which makes provision for a payment in respect of retirement from office as a director but which is entered into on the basis that there will first be a further period of continuing office will fall to be treated as giving rise to a covenanted payment outwith the scope of the section. It is, however, unnecessary for the purposes of this case to reach a concluded view on that issue. Further light is cast on the scope of the section by Lincoln Mills. I accept as sound the view that it is necessary, when considering whether a payment falls within the scope of the section, to have regard to "the nature and circumstances" of the payment in order to determine "its true character". The latter part of the passage which I have quoted in paragraph [15] above suggests that the fact that the payment is coincident with retirement from office will not necessarily be sufficient to bring it within the scope of the section. I note, however, that the passage which I have quoted concentrates on the language of the first two elements of the section, namely compensation for loss of office and consideration for retirement from office, and does not expressly refer to the third element, namely a payment "in connection with" retirement from office. Nevertheless, I am of opinion that the emphasis on the true character of the payment, and the rejection of mere temporal coincidence as sufficient to make a payment one made "in connection with" retirement from office, are sound.

[27] It is, in my opinion, therefore necessary to examine the nature and purpose of the "payment" as disclosed in the minutes of the meeting of 1 June and the correspondence of 10 and 12 June 1994. I take from those materials the following points:

1. The directors were contemplating the eventuality then clearly in view (although its date was not precisely fixed) that the pursuer would resign from office as Chairman and director of the defenders.
2. One factor which moved the directors to the course they took was their recognition of the pursuer's achievements during the period of his Chairmanship.
3. Another factor which moved them was his continuing commitment to the defenders, expressed in particular in the form of his willingness, even after he ceased to have a controlling interest in the defenders, to continue to offer them financial support in the form of guaranteeing their borrowings to the extent of £1 million.
4. The decision which the directors took in light of those considerations was to offer to the pursuer the position of Life President of the defenders.
5. At the time when that decision was taken at the meeting on 1 June, it was recognised that certain "conditions and privileges" would attach to the position of Life President, but those were not defined at that stage.
6. The "conditions and privileges were subsequently spelled out in the letter of 10 June. They included the three privileges which the pursuer seeks to establish in this action, but also included other matters, of greater or lesser significance, such as the right to wear official dress, the intimation of the position to various football authorities and publication of it in their annual books, controlled access to the stadium on days other than match days, and the inclusion of the pursuer's name as Honorary Life President on the defenders' letterhead.
7. It was clearly contemplated that the position would be a permanent one enduring for the life of the pursuer (although the use of the words "in perpetuity" - see paragraph 1 of the letter of 10 June - perhaps overstates the case).
8. The privileges were to be privileges of the Honorary Life President, and would not have been granted to the pursuer if he had declined to accept that position. In the event, he did accept it. In doing so, he reaffirmed his continuing support of the defenders.

[28] In light of those circumstances, I am of opinion that the question "In what connection were the disputed privileges conferred on the pursuer?" would naturally attract the answer "In connection with his holding office as Honorary Life President", rather than "In connection with his retirement as a director". In my view the true nature of the privileges was that they were seen by the directors as the appropriate privileges to be enjoyed by one who held the honorary position of Life President. They cannot, in my view, be divorced from that office, and regarded as retrospective payment for past services. Past service was an element (albeit only one element, along with the pursuer's continuing financial support) in the decision to offer the pursuer the position of Honorary Life President, but it was to the future enjoyment of that position that the disputed privileges were attached. The analogy which Miss Paterson sought to draw with remuneration attached to fresh employment in another capacity following retirement as a director is not, in my view, perfect, because any reciprocal obligations on the pursuer are less obvious in the case of an honorary position. Nevertheless, I am of opinion that the documents make it clear that the privileges were essentially attached to the future position as Honorary Life President rather than given in connection with retirement from office as a director. I am therefore of opinion that the proper inference to be drawn from the material before me is that the disputed benefits conferred on the pursuer were not of such a nature as to fall within the scope of section 312.

[29] I am also of opinion that the benefits are not properly to be regarded as constituting a "payment" within the meaning of section 312. It seems to me that the primary meaning of payment is a transfer of money, not of other valuable property, still less the conferring of a privilege even if capable of being valued in money terms. That that primary meaning is what was intended in section 312 derives support in my view from the reference to the "amount" of the proposed payment. I accept of course that the notion of "payment in kind" is familiar, and that payment may therefore in some contexts be in a form other than money (White v Elmdene Estates), but there is, in my view no clear indication in section 312 that that wider meaning is intended. If it had been, a reference to "value" as well as "amount" might have been expected. I do not consider that section 316(2)(b) provides the assistance in this connection that Mr Hodge sought to draw from it. What that subsection involves is that excess valuable consideration given to a director for property or shares will be deemed for the purpose of section 313 to 315 to be (i.e. treated as, although not actually being) "a payment made to him by way of compensation for loss of office or as consideration for or in connection with his retirement from office". I do not consider that that supports the inference that a transfer of value in a form other than money is a "payment" within the meaning of section 312 (which is not mentioned in section 316(2)). On the other hand, there is in my view considerable force in Mr Hodge's submission that if section 312 applies only to money payments, the scope for circumventing the control which the section was evidently designed to exercise is considerable. That consideration leads me to conclude that it would be wrong to hold that only a transfer of money can be a payment within the meaning of section 312. I should add that I would not have regarded the fact that the benefits were to be enjoyed over an indefinite period as constituting an insurmountable obstacle to regarding them as a "payment", although it would no doubt have made valuation difficult. The consideration which finally leads me to the conclusion that it has not been relevantly averred that the benefits conferred on the pursuer constituted a payment within the meaning of the section is the one identified by Mr Jones (see paragraph [22] above). In my opinion he was right to identify the purpose of section 312 as being to give to the members of the company control over transfer of funds belonging to the company by the Board to a retiring director. The focus is on the potential depletion of the company's assets, not on the benefit received by the retiring director. It therefore seems to me that Mr Jones was correct in his submission that it is not enough, for the purpose of characterising the benefits as a payment, to aver as the defenders do that they have a money value. What matters, it seems to me, is the cost to the company, not the gain by the retiring director. Although the defenders aver that the privileges conferred on the pursuer have a money value, their nature is not such as to make it obvious that it would actually cost the defenders anything to allow the pursuer to enjoy them. I am therefore of opinion that the defenders' averments are insufficiently specific to make out a relevant case that the disputed benefits constitute a payment within the meaning of section 312. It may be that the defenders could cure that defect, by increasing the specification of their averments by putting forward circumstances that show that there was a cost incurred by the defenders in allowing the pursuer to enjoy the benefits. As their pleadings stand, however, I do not consider that they are adequate on that point.

[30] For the reasons which I have discussed, I am of opinion that the defences and the counterclaim are irrelevant. I shall accordingly -

1. in the counterclaim sustain the pursuer's first plea-in-law and grant decree of dismissal; and
2. in the principal action sustain the pursuer's first plea-in-law and repel the defences, and thereafter sustain the pursuer's second plea-in-law and grant decree of declarator in terms of the first conclusion.

It was agreed between counsel that in that event it was unnecessary to grant interdict in terms of the second conclusion. I shall reserve the question of expenses.