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OUTER HOUSE, COURT OF SESSION
[2006] CSOH 180
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CA82/04
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OPINION OF
LORD DRUMMOND YOUNG
in the cause
JOHN SEMPLE
Pursuer;
against
(FIRST) JOHN
SEMPLE,
(SECOND) SCOTT
SEMPLE,
(THIRD) MANORGATE
LIMITED, and (FOURTH) NORTHYORK LIMITED
Defenders:
________________
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Pursuer: Jones, QC, Delibegovic Broome; Simpson &
Marwick
Defenders: Moynihan, QC; Maclay
Murray & Spens
29 November 2006
Background
[1] The
pursuer is the father of the first and second defenders. The third defender is a company which carries
on business as a retailer of laminate flooring.
The ownership of its shares is a major issue in the present action. The fourth defender is a company formed to
assume ownership of the subjects from which the third defender trades; those
subjects are held on lease by the third defender. The pursuer has raised an action against the
defenders for payment by the defenders jointly and severally of the sums of
£13,600 and £935,000. The action was
appointed to proof before answer.
[2] Prior
to 2001, the pursuer owned the entire shareholding in a company called Direct
Flooring Limited. It was a retailer of
laminate flooring, operating from a number of premises in Glasgow and the surrounding area. In January and February 2001 it experienced
severe financial difficulties. An
expensive television advertising campaign proved unsuccessful, and its largest
shop, in London Road, Glasgow, was subject to a major fire. The pursuer consulted Mr Thomas Millar, a
business consultant, about the company's financial problems; Mr Millar was the
first witness on the pursuer's behalf.
Mr Millar advised that liquidation was inevitable, and the company was
in fact wound up, in about May 2001.
Before that, however, Mr Millar had prepared financial projections for
Direct Flooring's business, and concluded that, with certain remedial action,
the business should be profitable (No 6/5(iv) of process). Mr Millar recommended that the number of
outlets should be reduced, the number of staff and vehicles reduced, and close
financial controls placed on the business. Nevertheless, by March 2001, Direct Flooring
Limited was insolvent to a very material degree; its liabilities exceeded its
assets by a sum between, according to the evidence, £600,000 and £1 million. Consequently Mr Millar recommended that the
business should be transferred to a new company. In pursuance of Mr Millar's recommendations,
steps were taken to transfer the business of Direct Flooring to the third
defender, Manorgate Limited. Manorgate
was incorporated by company registration agents on 12 March
2001 and was
purchased from them on 14 March 2001 (No 7/20 of process). Its authorized share capital was £100 divided
into 100 shares of £1 each (No 7/2 of process). Of those shares, two subscriber shares were
issued at the outset. The original
holders of those shares were two companies associated with the company
registration agents who were responsible for Manorgate's incorporation. Thereafter certain steps were taken in
relation to those shares and the other 98 shares in the third defender; I
discuss these matters below. On the
evidence, I find that the director of Manorgate immediately following its
acquisition from the company registration agents was Mr Millar. On 13 April 2001 Manorgate made an offer to acquire
the stock of Direct Flooring Limited, and that offer was accepted on the same
date by the latter company; Mr Millar signed the offer on behalf of Manorgate,
and the second defender signed the acceptance on behalf of Direct Flooring. The price payable was approximately
£40,000. Shortly thereafter Manorgate
began trading from the premises that had been occupied by Direct Flooring. The first and second defenders assumed
responsibility for running its business, and were permitted to do so by the
pursuer. The transaction with Direct
Flooring was examined by the liquidator of the latter company, who did not
challenge it.
[3] It
is a matter of agreement that a meeting took place immediately outside the door
of the office of Richard Beattie & Co, the company accountants, on 25 or 26 June
2001; there
was uncertainty about the precise date, but that uncertainty is not material
for present purposes. Those present were
the pursuer and the first and second defenders.
It is agreed that a conversation took place among them, but there is
sharp disagreement as to what was agreed during that conversation. Thereafter the pursuer and the first and second
defenders went into Richard Beattie's office, where share transfer forms were
completed and signed by the pursuer, transferring 49 shares in Manorgate to
each of the first and second defenders (Nos 7/16 and 7/17 of process). Thereafter, payments were made by Manorgate
to or on account of the pursuer for a period at the weekly rate of £1,200;
subsequently, the payments were reduced to £700 per week. During the initial period after the meeting,
however, the payments had been irregular in timing and amount. By a letter dated 5 July 2003 (No 6/1 of process), drafted by
their agents, the first and second defenders wrote to the pursuer in the
following terms:
"As you know,
about two years ago, Scott and I decided to make arrangements to help you
financially. At that time you were faced
with significant debts and seemed to be having difficulty making ends
meet. Naturally, as your sons, Scott and
I wanted to help you as far as we could.
To that end, we made arrangements for money to be paid to you each week
in order that you could try to meet some of your substantial debt liabilities
and have a reasonable amount to live on.
This was a
private, family arrangement, between father and sons. There was no contract, no legal agreement, no
legal obligation of any description.
These payments were ex gratia, ad hoc, made without legal (as opposed to
moral) obligation, and terminable at will.
Naturally, payments were routed by Scott and me through our
Company, Manorgate Limited, for fiscal and administrative convenience. But that did not alter the character of the
payments to you
...
We now intend
to stop the payments altogether....
We have tried
our best to help you with your financial difficulties; but it seems to us that
you are making no or little headway out of your debt problems. (The original payments of £1200 per week were
roughly calculated to take account of your estimated debts of about £700 per
week at that time). Your debt position
has not improved in the least. Indeed,
as far as we are aware, it has worsened....
Accordingly,
with regret, please note that our arrangement (and all further payments to you)
will terminate with effect from Friday 18 July 2003."
After that date no further payments
were made to the pursuer for a time, but payments of £700 per week restarted on
9 September 2003 and continued until 9 January 2004.
No payments were made after that date.
The parties' contentions
[4] The
pursuer contends that prior to the meeting of 25 or 26 June
2001 he was
the registered and beneficial owner of the whole of the issued share capital of
the third defender. He further contends
that, outside Mr Beattie's office, he agreed with the first and second
defenders to transfer that shareholding to them. In consideration, the first and second defenders
were to pay the pursuer the sum of £1,200 per week for the remainder of his
life. The pursuer contends that the
letter of 5 July 2003 amounted to a repudiatory breach of
the agreement concluded in June 2001. In
the present action, he seeks payment of certain sums that are said to be due in
terms of that agreement, and also damages for breach of the agreement. In the first place, he claims payment of the
difference between the instalments of £700 per week that were actually paid to
him and the instalments of £1,200 that he contends were due to him in terms of
the agreement. The sum that is said to
be due in that respect is £4,000. In the
second place, the pursuer seeks payment of the instalments of £1,200 per week
for the period between the termination of actual payments and the pursuer's
acceptance of the first and second defenders' repudiatory breach of contract;
that acceptance is said to have taken place on 10
September 2003. The sum that is said to be due
in that respect is £9,600. Those sums
together total £13,600. In relation to
damages, the pursuer seeks a sum sufficient to purchase an annuity of £1,200
per week for the remainder of his life.
The cost of that is estimated at £135,000.
[5] The
defenders' position is broadly in accordance with the letter that they sent to
the pursuer on 5 July 2003.
Their contentions may be summarized as follows. First, apart from the two subscriber shares,
no shares had been issued prior to the meeting of 25 or 26
June 2001;
consequently the pursuer was not in a position to enter into any agreement to
transfer any shares for a consideration other than the single subscriber share
held by him. Secondly, no legally
binding agreement was concluded at the meeting held outside Richard Beattie's
office in June 2001, and certainly no such agreement was concluded on the terms
claimed by the pursuer. Thirdly, the
pursuer had failed to prove that, implement of such an agreement, he had
executed and delivered the appropriate stock transfer forms to the first and
second defenders in order to transfer the shares to them. If he had not implemented his side of the
agreement, he could not enforce the obligations incumbent on the
defenders. In this connection, the
defenders presented an argument based on the Stamp Act 1891 to the effect that
the stock transfer forms that had been produced were not properly stamped and
hence not admissible in evidence. The
most critical of these contentions is the second; it would clearly be fatal to
any claim by the pursuer.
Credibility
[6] The
evidence disclosed a sharp conflict between the pursuer on one hand and the
first and second defenders on the other hand.
This related in particular to what happened at the meeting outside
Richard Beattie's office in June 2001, but extended to events before and after
that meeting. It is clear that this
conflict raises matters of credibility rather than reliability. The accounts of the meeting given by the
pursuer and by the defenders were directly opposed to such an extent that the
differences cannot be attributed to faulty recollection or imperfect
understanding.
[7] On
the question of credibility, I have no hesitation in preferring the evidence of
the first and second defenders to that of the pursuer. I do so for two reasons. First, as I listened to the pursuer's
evidence and observed his demeanour in the witness box, I formed a very decided
impression that he was not a credible witness.
This impression was particularly marked during cross-examination; in my
notes of cross‑examination, I have recorded a large number of comments
adverse to the witness's credibility.
Four examples may suffice to give a flavour of my impression of the
witness; I emphasize that these are only examples. First, fairly early in his cross-examination
(25 November 2005, 10.47) the pursuer stated that he understood that he had
been a director of Manorgate, along with the first defender; he did not know
whether Mr Millar had been a director.
There is no documentation to suggest that the pursuer was ever a
director, and Mr Millar in his evidence stated that he had been a director and
the pursuer had not. There was an
important reason for this; Manorgate required to have a merchant account with a
bank in order for it to receive payments by credit card or debit card, and it was
unlikely that any bank would give the company a merchant account if the pursuer
were one of the directors; the reason was that the pursuer had been a director
of Direct Flooring, which had gone into insolvent liquidation. The pursuer must have been aware of this
consideration. Consequently, I cannot
accept that he was telling the truth when he stated that he thought that he had
been a director and was not sure about Mr Millar's position. In any event, it would be very strange for
one director of a company not to know who the other directors were, and I
cannot believe that he did not know that Mr Millar was a director. Secondly, counsel for the defenders suggested
to the pursuer that, if the stock and trading name of Direct Flooring was
acquired for £40,000, it would be an astonishing change if 10 weeks later the
defenders purchased the company for the equivalent of £900,000 (25 November
2005, 12.22). The defender's reply was
that this was not an astonishing change; the defenders knew what they were doing.
It was noteworthy that the pursuer did
not even acknowledge that anything had to be explained. I found his failure to face up to the
implications of the question an eloquent indication that he was not even
attempting to tell the truth. Thirdly,
the pursuer was questioned at some length about the tax treatment of the
pension payments that he claimed to be entitled to receive (25
November 2005,
2.24). The pursuer's pleadings said
nothing about tax; and nothing was said about tax in the pursuer's evidence in
chief. That would appear to lead to the
clear implication that the payments were gross payments, with the pursuer
responsible for paying the tax. In
cross-examination, when questioned about the tax treatment of the payments, the
pursuer stated that he was to receive £200 per shop per week (the equivalent of
£1,200 per week) "clear". He was pressed
at some length about this, and I found his answers to be incoherent and
evasive. I formed the clear impression
that the pursuer, when asked about the issue of tax, had opportunistically seen
an advantage in asserting that Manorgate was responsible for the tax. This impression was reinforced by the
generally evasive nature of his answers.
Fourthly, in his examination in chief (24
November 2005,
3.28) the pursuer was asked about the funding for Manorgate in March 2001. He suggested that he had introduced funds
totalling £43,800 to Manorgate to enable the company to purchase the assets of
Direct Flooring, and stated it he had paid them from his personal account. He then added that some of the money had come
from his director's loan account with Direct Flooring. In cross-examination (25
November 2005,
3.07 onwards), he accepted that the whole of the funds had come from Direct
Flooring. He denied, however, that he
had known that Direct Flooring was insolvent at the time (3.17). I found that denial plainly incredible;
Direct Flooring had been in very serious financial difficulties, and he must
have been aware of them.
[8] The
second reason for disbelieving the pursuer as a witness is that three of the
documents that he put forward in support of his case were in my opinion clearly
false. The first of these was an invoice
relating to a Bentley car (No 6/5(vii) of process). The document is headed "Used Car Purchase
Invoice"; it bears to be an invoice for the sale of a Bentley car by the
pursuer to "R McDonald (Commerce St Cars)" on 14 May
2001. It is signed by the pursuer as seller in two
places, in each case against the date "14-5-01".
The document was lodged in process as a result of a motion enrolled on 22
February 2005
for the receipt of late productions, a few days before the original diet of
proof fixed in the case. The
significance of this document was as follows. The defenders gave evidence that they provided
finance for the company in the early period of its trading, prior to the
meeting in June 2001. In the affidavit of
Mr AG Macmillan, the company's internal accountant (No 7/39 of process), it is
stated that on 14 May 2001 the first defender paid Manorgate
£10,000. It was suggested to the first
defender in cross-examination that that sum was derived from the sale by the
defenders of the pursuer's Bentley car.
The invoice recorded that the price of the Bentley car, £16,000, was
received in two instalments, the first being for £10,000. In cross-examination (26
February 2005,
3.28), it was suggested to the pursuer that the document was false. He refused to answer counsel's questions, as
of course was his right. Nevertheless, I
am entitled to draw an adverse inference from his failure to answer those
questions. In re-examination the pursuer
stated that he had consulted another "well-known garage" to obtain a record of
the transaction. That garage had given
him the paper and provided guidance as to how to fill in the document. It is accordingly clear that the document is
false.
[9] The
defenders had obtained an affidavit from Mr Jason Connolly, who trades under
the name Commerce Car Company; he previously traded in Commerce Street in Glasgow.
In the affidavit he stated that he purchased the car from the first and
second defenders, at an unspecified date.
He further stated that the invoice produced by the pursuer was
definitely not a purchase invoice issued by him or his business; he did not recognize
the document. Mr Connolly was on the
defenders' list of witnesses, but was called by the pursuer. He confirmed that the invoice was false. He had been approached by the pursuer and
asked for a copy of the relevant invoice, but he had been unable to find
one. Mr Connolly had understood that all
that the pursuer wanted was a copy of an invoice for his own accounting
purposes; he was not told about the significance of the document to the present
action. On that basis, Mr Connolly had
advised the pursuer that he could make up his own invoice. It is accordingly clear that the purported
invoice lodged in process is false, but was put forward in the action as if it
were a genuine document. Moreover, the
invoice contains the pursuer's signature, in a manner that suggests that it was
signed by the pursuer on 14 May 2001.
That too is clearly false.
[10] The
second false document put forward by the pursuer is a copy Form 288a, which
bears to record that the pursuer was appointed a director of Manorgate on 20 July
2001 (No
7/11 of process). It has been signed by
the pursuer, against the date 20 July 2001, and bears to have been
countersigned on that date by Stephen Mabbott as a director or secretary of
Manorgate; Stephen Mabbott was an employee of the company registration agents
who set up Manorgate, and was one of the original directors. Mr Mabbott had in fact resigned as a director
on 14 March 2001 (No 7/6 of process); consequently he could not have signed
No 7/11 of process on the date against his signature. When this document was put to Mr Millar in
cross-examination (22 November 2005, 3.11), Mr Millar stated that there
had been two pre-signed Forms 288a and that this would be one of
them. It was then put to Mr Millar that
it beggared belief that the pursuer was made a director at that time. Mr Millar agreed. It was suggested that it also beggared belief
that the form was signed by Mr Mabbott on 20 July. Mr Millar agreed. When it was suggested that it was a false
document, Mr Millar replied that it was certainly not signed by Mr Mabbott on
that date. When pressed further, he
stated that he had to agree that it was a false document. This point was not taken up in
re-examination.
[11] In
cross-examination, the pursuer accepted that he had signed No 7/11 of process (24
November 2005,
3.55), but stated that the document was an original document that had come from
Mr Mabbott; two were supplied in the box of documents that accompanied every
new company. When a director or
secretary was appointed the only way was by using "pre-signed" Mabbott
documents. The pursuer further stated
that the date "20.7.01" was not in his writing; nor was a reference in the form
to "Direct Flooring Ltd"; these matters had probably been filled in at
Richard Beattie's office. The
pursuer denied, however, having had a meeting at Richard Beattie's office at
about this time (under reference to No 7/18 of process, a copy of the covering
letter sent to Companies House along with the Form 288a). At about this point in his evidence the
pursuer stated that he believed that he had been a director from the time when
Manorgate was acquired from Mabbotts (3.59); the intention was that the
directors should be the pursuer and the first defender, and possibly Mr
Millar. The pursuer's evidence was
clearly intended in my view to convey the impression that he had signed this form
in March 2001, in Mabbotts' office, thus supporting the view that he had been a
director from the outset. The following
morning (35 November 2005, 10.44 onwards) the pursuer was asked further
questions about this matter. On this
occasion he stated that it was Mr Millar's choice whether he became a
director. At this point I form a
distinct impression that the pursuer was being evasive in his answers, and made
a note to that effect.
[12] In
fact no other witness supported the pursuer on this matter. Mr Millar gave evidence that he was appointed
director and secretary on 14 March, and that the pursuer was only a
shareholder. Manorgate had in April 2001
made an application to the Clydesdale Bank for a merchant account, which was
essential for it to conduct its business properly. This document (No 6/5(iv) stated,
incorrectly, that the pursuer was a director of the company, as well as Mr
Millar. Mr Millar stated (22
November 2005,
2.00) that the pursuer's name was inserted not because he was believed to have
been a director but because of his existing connection with the Clydesdale
Bank. The Clydesdale Bank refused a
merchant account. A subsequent
application for a merchant account was made to the Bank of Scotland in June (No
7/37 of process, page 8). On this
occasion the bank had stated that they had a policy of not giving a merchant
account to a company if any director had been involved in an insolvency within
the previous two years (22 November 2005, 3.48). The directors specified in the application
were Mr Millar and the first defender.
On this occasion the merchant account was granted. There were accordingly good reasons for not
having the pursuer as a director. The
pursuer was cross-examined about this issue (25
November 2005,
10.47) and continued to maintain that he had understood himself to be a
director at this time. At this point I
found his answers to be evasive, and made a note to that effect.
[13] The
problems with the Form 288a, No 7/11 of process, do not end there. Even if the pursuer had signed the document
in Mabbotts' office in March, there was no possible reason for its being left
undated and retained until July. Various
other documents were signed on 12 or 14 March (Nos 7/2-8 of process), and none
of these bore a later date. On the basis
of the foregoing evidence, I conclude that the Form 288a, No 7/11 of
process, is false. In this connection,
it is notable that, in his pleadings, the pursuer avers that until about June
2001 he was the beneficial owner and registered proprietor of the whole of the
issued share capital of Manorgate and was, along with the first director, a
director of Manorgate. That is clearly
intended to indicate why the defenders had to pay him to take over the company.
[14] The
third false document put forward by the pursuer is a Form 88(2), which bears to
record the allotment of 98 shares in Manorgate to the pursuer on 14
March 2001
(No 7/9 of process). The Companies House
date stamp on this document bears the date 26 July 2001.
That is consistent with its having been sent to the Registrar of
Companies at the same time as the Form 288a, No 7/11 of process. Both document appear to have been sent under
cover of a letter from Richard Beattie dated 23 July 2001 (No 7/18 of process). The Form 88(2) bears to have been signed by
Mr Millar on 14 March. Mr Millar
referred to this document in his evidence in chief (22 November
2005,
12.48); he stated that he expected that he signed the document on 14 March, but
was not certain. The name and
designation of the pursuer as allottee was not in his handwriting. This matter was taken up in cross-examination
(22 November 2005, 3.06), when Mr Millar accepted that
the document would have been blank when he signed it. He was also unable to explain why the
document was not lodged with Companies House until 26 July (3.14).
[15] For
reasons discussed subsequently, I have come to the conclusion that it has not
been established that the 98 shares were allotted to the pursuer at any
time. In these circumstances, I conclude
that No 7/9 of process was a document concocted by or on behalf of the pursuer
in about July 2001, to suggest that such an allotment had in fact been made in
March. I accept that Mr Millar signed
the form in blank in March. The details
of the transferee, however, were clearly added later; that is the only sensible
explanation for the fact that the document was not sent to Companies House
until about 23 July.
[16] I
accordingly conclude that the pursuer is not a credible witness. By contrast, I found the evidence of the
first and second defenders to be credible and, generally speaking,
reliable. Both defenders gave their
evidence in a fair and measured fashion, and both came across as clearly
anxious to tell the truth. The case that
they put forward was coherent, and agreed with the documentary evidence. Consequently, on the conflicts that occurred
between the evidence of the pursuer and that of the first and second defenders,
I unhesitatingly prefer the latter.
The meeting of 25-26 June 2001
[17] The
critical issue in the case is what agreement, if any, was reached between the
pursuer on one hand and the first and second defenders on the other at the
meeting that is agreed to have taken place immediately outside Mr Beattie's
office on either 25 or 26 June 2001.
For the reasons given in paragraphs [6]-[15], I am of opinion that the pursuer's
evidence about this meeting is not credible, and that the contrary account
given by the first and second defenders is clearly to be preferred. That account is as follows.
[18] Direct
Flooring had become seriously insolvent.
In part this was caused by two specific factors, a misjudged advertising
campaign in January 2001 and a fire at the company's main premises, in London Road, Glasgow.
In large measure, however, it was the result of poor financial controls
and poor management practices. The company's
indebtedness at the time of its collapse amounted to somewhere between £600,000
and £1 million. An important element at
this stage was a debt due by the pursuer to a Mr James Mortimer, who had lent
the pursuer £100,000 to enable the pursuer to assume sole control of Direct
Flooring. Mr Mortimer was insistent that
that debt should be repaid. The first
defender stated that most of the talk at this time related to the debt due to
Mr Mortimer and how it was to be paid (29 November 2005, 2.27); Mr Mortimer was
aware of Direct Flooring's financial difficulties, and he was concerned to get
his money paid. What was proposed,
accordingly, was a rescue package to enable Mr Mortimer to get his money. On the advice of Mr Millar, on 14 March
2001
Manorgate was acquired in order to take over the assets of Direct Flooring and
to restart the business carried on by the company. At the time when Manorgate was acquired, that
was all that was agreed; the ownership of the shares in the company was not
discussed except in relation to the two subscriber shares (a matter discussed
below at paragraph [33]). One
possibility that was being canvassed at this time was that Mr Mortimer would
simply take over the company for his own benefit; alternatively Mr Millar might
run it. During the month following the
acquisition of Manorgate discussions took place among the pursuer, the
defenders and Mr Mortimer. Early in
April the first and second defenders met the pursuer in his house and suggested
that they should take on the business and pay Mr Mortimer. The pursuer seemed to agree with the
suggestion, and Mr Mortimer was approached.
A meeting, at which the first and second defenders and the pursuer were
all present, took place shortly thereafter at Mr Mortimer's house. The first defender described the meeting as
"quite unpleasant", but ultimately Mr Mortimer seemed to agree that the
defenders' proposal was the best option.
The result of these discussions was that the first and second defenders
agreed that they would be responsible for paying the debt due by the pursuer to
Mr Mortimer, and that they would take on the new company and ensure that the
price of the assets (£40,000) was paid to the liquidator of Direct
Flooring. Approximately one month after
it had been acquired, on 13 April 2001, Manorgate acquired the assets of
Direct Flooring and began to trade, with the first and second defenders in
charge of the business. The first and
second defenders each paid Mr Mortimer £25,000 in cash early in May 2001. The second defender explained that he and his
brother took on the debt owed by Mr Mortimer to the pursuer because they
were taking on the business (23 November 2005, 3.18).
[19] When
Manorgate began to trade the first and second defenders faced considerable
difficulties. The first defender
explained (29 November 2005, 2.53) that staff levels had to the
reduced to cut costs. New suppliers of
stock had to be found, in order to obtain a better product mix and to reduce
the company's prices to customers. The
company's main outlet, at London Road, Glasgow, was not operating because of the
fire, and it was not clear whether the company would be able to continue with
the lease their. In addition, the
company did not have a merchant account; that was necessary in order to receive
payments using debt and credit cards, and the first defender expressed the view
that the company would "severely struggle" without such an account (29 November
2005, 3.14). Mr Millar arranged for the
company to apply to the Clydesdale Bank, but that application was
rejected. Thereafter, the first defender
explained that he pressed Mr Millar to try to obtain a merchant account from
another bank, and Mr Millar stated that he might have a contact with the Bank
of Scotland. In due course, an
application was made to the Bank of Scotland.
The first defender met the branch manager, and an account was
granted. As part of the arrangements to
obtain the account, the first defender was made a director of the company; that
occurred on 26 June 2006.
The second defender was not appointed a director because he had
previously been a director of Direct Flooring.
[20] At
this time the first and second defenders did not believe that any shares in
Manorgate had been issued beyond the two subscriber shares. By June the first and second defenders had
decided that they should issue the shares to themselves. When the first defender mentioned this to the
pursuer, the pursuer told him that he had issued the 98 shares to himself as
security to ensure that Mr Mortimer would be paid. The pursuer then drove away, terminating the
conversation. Shortly thereafter, the first
defender telephoned the pursuer and said that the company was his and the
second defender's. The pursuer repeated
that he was keeping the shares as security.
He then stated that it would be necessary to meet at Mr Beattie's office
to get the matter sorted out. The first
defender agreed, and a meeting was arranged with Mr Beattie. Prior to that meeting the most recent
management accounts were those for the six weeks ended 27
May 2001 (No
7/29 of process, tab 13). Those
disclosed a trading loss for the period of £24,316.
[21] The
pursuer and the first and second defenders met outside Mr Beattie's office on
25 or 26 June 2001. The first
defender stated that the pursuer "looked pretty down"; he seemed depressed, and
was very anxious that the debt due to Mr Mortimer should be paid. The first defender stated that it would be
paid. He and his brother tried to
comfort the pursuer as well as they could.
The second defender described the pursuer as "quite emotional", and
feeling sorry for himself and down on his luck.
The defenders consoled him and said that they would try to do what they
could for him. Neither defender accepted
that any undertaking had been given to pay the pursuer £1,200 per week for
life. The defenders and the pursuer then
entered Mr Beattie's office and had a meeting that lasted 10 to 15
minutes. The only discussion was that
the whole of the shares in Manorgate were to be transferred by the pursuer to
the first and second defenders. Mr
Beattie completed stock transfer forms for the 98 shares to the first and
second defenders (Nos 7/16 and 7/17 of process), and was instructed to arrange
for the transfer of the subscriber shares to them. No witness suggested that anything was said
to Mr Beattie about any undertaking to pay the pursuer £1,200 per week for
life. Two stock transfer forms which
bear to record the transfer by the pursuer of 49 shares to each of the first
and second defenders are lodged in process as Nos 7/16 and 7/17 of
process. When reference was made to
these, however, counsel for the defenders objected on the ground that, if the
pursuer were correct in his evidence about the meeting of 25 or 26
June 2001,
the forms were not duly stamped. In my
opinion this objection is well founded, for the reasons set out at paragraphs [37]
to [44] below. The result is that, if
the pursuer is correct in his account of the meeting of 25 or 26
June 2001, no
reference can be made to those documents in the present proceedings. This has significant consequences, which are
also discussed below.
[22] Following
the meeting payments were made by Manorgate to the pursuer or to his
account. The defenders were aware that the
pursuer was in financial difficulties, quite apart from the debt owed to Mr
Mortimer, and they were anxious to provide some assistance to him. Initially the payments were not regular; no
agreement had been reached as to how much was to be paid. Eventually the first and second defenders
agreed that a payment of £1,200 per week would be made; £700 of that was to
enable the pursuer to pay off his debts and £500 was for him to live on. On Mr Beattie's advice the payments were
treated as consultancy fees paid by Manorgate to the pursuer; in this way it
was intended to ensure that the pursuer, and not Manorgate, was responsible for
income tax in respect of the payments. The
first payment of £1,200 was made on 20 July 2001.
Even then, however, other payments of differing amounts were made. Regular payments of £1,200 per week started
on 12 October 2001; on 30 January 2002 a standing order was put in place to
have £1,200 per week paid to the pursuer, and thereafter regular payments were
made until 13 May 2003; from 12 March 2003 the sums were credited to an account
in the name of a firm known as Direct Car Sales Ltd, which was controlled by
the pursuer. On 20
May 2003 the
payments were reduced to £700 per week, and payments at that rate continued
until 15 July 2003. Thereafter
the payments ceased, for the reasons stated in the defenders' letter of 5
July 2003
(quoted in paragraph [3] above); the defender was failing to get his debt
problems under control. Indeed, the
defenders had asked Mr Millar to investigate the pursuer's problems, but
the pursuer refused to disclose his financial position. After 15 July, however, the pursuer came to
see the defenders at Manorgate's Hillington premises and indicated that he
remained in financial difficulties.
Thereafter the defenders restarted payments of £700 per week with effect
from 9 September 2003.
The reasons for doing so are stated in a letter from their agents to the
pursuer's agents dated 5 September 2003 (No 6/4 of process); in summary, the
pursuer had fallen on hard times again and was in considerable need of
financial assistance. In that letter,
however, it was stated that the payments were made on the understanding that
there was no legal obligation to make them.
Those payments continued until 9 January 2004, when all payments stopped.
The pursuer's account of the meeting
[23] The
defenders' position was that none of the foregoing payments was made under any
legal obligation to the pursuer; they were simply payments made to their father
to assist him financially, in a period when their father was in considerable
financial difficulties. I accept that
contention. As indicated above, I found
the defenders to be credible witnesses; for that reason alone, I prefer their
account of events. In addition, I find
the defenders' account to be inherently much more probable than the pursuer's
account. I reach that conclusion for a
number of reasons.
[24] In
the first place, the pursuer's evidence was that there had been no discussion
about the ownership of shares until the meeting that occurred outside Mr
Beattie's office. In his examination in
chief (24 November 2005, 2.57 onwards), he stated that the defenders had
telephoned him out of the blue and invited him to meet them at Mr Beattie's
office on an important matter; they would not explain what it was until the
meeting took place. When the pursuer and
the defenders met, the latter explained that, because of the problems that the
pursuer had been having with his health and the pressure that he had been under
the thought that it was time for him to take life more easily. They would make a weekly payment to him and
he would transfer the shares to them; thereafter he could stay at home, visit
friends and generally relax. The pursuer
suggested that they should pay him so much per shop. He was told that the turnover in each shop
was in the region of £8,000 to £10,000 per week, and he then asked for £200 per
shop per week. After further,
essentially jocular, discussion the defenders agreed on a figure of £1,200 per
week based on the six shops that were then trading. The parties then went in to see Mr Beattie,
and the pursuer instructed him to transfer 49 shares to each of the first and
second defenders. The stock transfer
forms were signed. Thereafter, according
to the pursuer, the sum of £1,200 per week was paid regularly. In cross-examination, however, when the
schedule of payments at tab 5 of No 7/29 of process was put to him (25
November 2005,
2.01 onwards), he was compelled to depart from the latter proposition. He tried to suggest that deficiencies would
be added onto the following payments, but I did not find this explanation credible.
In cross-examination the pursuer further
accepted (25 November 2005, 12.31) that Mr Beattie had not at
that time been told of any agreement to pay a pension. In general, I found the pursuer's account of
the meeting outside Mr Beattie's office highly improbable. It seems most unlikely that an important
transaction, involving payments that are worth, according to the pursuer,
approximately £900,000, would be concluded in the course of a short doorstep
meeting, without any prior discussions.
Moreover, if the pursuer's version is correct, the pension was the
consideration for the transfer of the shares, and it would be extraordinary if
that were not mentioned to Mr Beattie when he was instructed to transfer the
shares to the first and second defenders.
In addition, it would be clearly expected that tax advice would have
been taken from Mr Beattie; he was the obvious person to give such advice. All these factors suggest that the pursuer's
account of the meeting lacks credibility.
[25] In
the second place, the pursuer's evidence to the effect that there had been no
discussions about the transfer of shares prior to the meeting of 25 or 26 June
is contradicted by Mr Millar's evidence.
Mr Millar gave evidence (22 November 2005, 2.30 onwards) that there had been a
dispute between the pursuer and the first and second defenders over company
money that the former had used to pay for the acquisition of an interest in
certain chalets in Dunoon. The defenders
considered that this was not an appropriate use of company money, and had
approached Mr Millar for advice as to how to obtain control of the company from
the pursuer. Mr Millar stated that he
had told the pursuer not to give up control of the company. Nevertheless, according to Mr Millar, the
pursuer was harassed by the first and second defenders, and late in June the
pursuer telephoned Mr Millar to state that he had done a deal with the first
and second defenders and had transferred shares to them.
[26] In
the third place, prior to the meeting held on 25 or 26 June, Manorgate had been
trading for only some ten weeks. It was
the successor to Direct Flooring, a company formed in July 1999 which by March
2001 had become insolvent, with a deficiency to creditors of at least
£600,000. The price agreed for Direct
Flooring's assets was approximately £40,000; that transaction was considered by
the liquidator of Direct Flooring, and was not challenged by him. It must therefore be assumed that that was a
reasonable estimate of the value of Direct Flooring's assets. Against that background, it seems wholly
inconceivable that the defenders would have agreed to pay the pursuer a pension
with a capital value in excess of £900,000, according to the calculations in
the summons.
[27] In
the fourth place, if the pursuer's account of the meeting is correct, I find it
most improbable that the tax treatment of the payments to be made to him was
not given detailed consideration. I
consider this matter further at paragraphs [28]-[30] below. For all of the foregoing reasons, I am unable
to give any credence to the pursuer's account of the meeting of 25 and 26 June
and the subsequent payments that were made to him.
Tax
[28] When
payments of the sort claimed by the pursuer are made, their tax treatment is
clearly an important consideration. The
pursuer's averments make a straightforward reference to payments at the rate of
£1,200 per week. In his evidence in
chief the pursuer stated that the agreement was to pay £200 per shop, amounting
to £1,200 in total, with no mention of the tax treatment (24
November 2005,
3.02). In cross-examination (25
November 2005,
12.40, 2.24), he stated that he expected to get £1,200 per week tax free. This issue is very important; if payments are
received free of tax the person making them is liable to pay income tax on the
grossed up amounts of the payments, and to account for such tax to the
Revenue. For this reason, I think it
most improbable that any agreement of the sort suggested by the pursuer would
have been concluded without detailed consideration of the tax treatment of the
payments that were to be made. That strongly
supports the defenders' contention that no such agreement was concluded. In addition, I find it extraordinary that the
question of taxation was not considered in either the pleadings or the pursuer's
evidence in chief; the matter is obviously important.
[29] In
cross-examination, the pursuer stated (25 November 2005, 2.24) that he understood that the
payments would be made with the tax paid.
He had had a discussion with the first and second defenders about tax
liability outside Richard Beattie's office. They had not gone into the matter in great
detail; "you do not on that sort of occasion", as there is no time, but the
pursuer had said that the money that he got was to be "clear". As I have already indicated, I found that
passage in the pursuer's evidence to be lacking in credibility. If tax had been mentioned, it would have been
obvious that a discussion would be required, and professional advice would
almost certainly have been taken.
[30] The
pursuers lodged an affidavit of Mr AG Macmillan, Manorgate's internal
accountant (No 7/29 of process), together with supporting documentation,
including the schedules of payments referred to previously. These made it clear that the payments to the
pursuer had been made by Manorgate, and had latterly been made to a company
known as Direct Car Sales Limited. The
second defender, who was called as a witness by the pursuer, stated (23
November 2005,
2.12 onwards) that the payments were put through Manorgate's books as
consultancy fees in order to obtain tax relief; he stated that this had been
done on the advice of Mr Beattie. At
this point the evidence proceeded on the assumption that the payments put
through Manorgate's books were the gross amounts due; it was not suggested that
the payments were net of tax; nor was it suggested that the company ought to
have put the grossed up amounts of the payments through its books, or that it
ought to have accounted for the tax to the Revenue. That is a powerful indication that there was
no intention, or at least no common intention, that the payments should be made
net of tax.
Evidence of Mr Paul Belton
[31] Mr
Paul Belton, who is a solicitor, is a cousin of the first and second defenders
and the nephew by marriage of the pursuer.
He gave evidence (29 November 2005, 12.17 onwards) about his
understanding of the agreement allegedly concluded on 25 or 26 June
2001. This accorded generally with the
case put forward for the pursuer. Mr
Belton stated in particular (29 November 2005, 12.24, 12.56) that in the course of
a series of telephone conversations one weekend the first defender had
confirmed the pursuer's account of the arrangement. The first defender had stated that an
agreement had been reached whereby the pursuer would be paid £1,200 per week,
on the basis of £200 for each shop, this was described as a "pension".
[32] That
is potentially strong evidence in favour of the pursuer's account. In cross-examination, however, it became
clear that there was considerable animosity between Mr Belton and the
defenders. This arose out of two
matters. First, the defenders' mother
(who is estranged from the pursuer) had transferred a family home out of Mr
Belton's mother's name into her own (29 November 2005, 12.42). Secondly, in 1985 Mr Belton had advanced a
loan of £20,000 to the pursuer in respect of a public house. That debt was supposed to be repaid out of
the sale proceeds of the house that the defenders' mother had allegedly transferred
into her own name. Mr Belton now
thought that the pursuer lacked the necessary funds to repay him. It is unnecessary to go into the details of
these disputes; all that is significant for present purposes is that Mr Belton
has an interest in supporting the pursuer's case. That may have given him an inclination to
construe statements made by the first defender in a manner that suggested that
the pursuer would receive funds which might in due course be used to pay Mr
Belton's debt. Ultimately, I must
proceed on my assessment of the witnesses as they gave evidence in court. On that basis, as I have already indicated, I
have no hesitation in preferring the account given by the first and second
defenders. I must accordingly conclude
that the evidence of Mr Belton regarding what he was told by the first defender
was, for whatever reason, wrong. This
applies in particular to Mr Belton's statement that he had been told by the
first defender that the pursuer was to receive a pension for life.
Ownership of issued share capital of Manorgate Limited
[33] In
the summons the pursuer avers that until June 2001 he was the beneficial owner
and registered proprietor of the whole of the issued share capital of
Manorgate. That averment is clearly
important, because ownership of those shares was essential to enable the
pursuer to implement any agreement of the sort that is relied on by him. The two subscriber shares were held initially
by two companies associated with the company registration agents who caused
Manorgate to be incorporated. In October
2001, Richard Beattie instructed the transfer of those two shares from the
original subscribers to the pursuer and the second defender respectively (Nos
7/19 and 6/11(iii) of process). The form
requesting the transfer is dated 14 March, but nothing seems to have been done
to implement the transfer until October.
The date on the form is consistent with the evidence of Mr Millar, who
stated that the intention was that one of those shares should be held by the
pursuer and the other by the second defender (22 November 2005, 12.54). The result is that the two subscriber shares
were not registered in the pursuer's name in June 2001, and since October 2001
they have been registered in the names of the pursuer and the second defender.
[34] The
other 98 shares were the subject of the Form 88(2), No 7/9 of process, which I
have held (at paragraphs [14] and [15] above) to be a false document concocted
for use in connection with the claim made in the present proceedings. That document bears to record that the 98
shares were allotted to the pursuer on 14 March 2001.
Article 3 of Manorgate's articles association provides that shares may
only be allotted by directors. No
suggestion has been made that the 98 shares were allotted by the companies
associated with the company registration agents. After they ceased to be directors, Mr Millar
became the sole director of the company.
That remained the position until the first defender became a director on
26 June 2001 (No 7/10 of process).
Mr Millar, in his evidence in chief (22 November 2005, 12.48), accepted that he had signed
No 7/9 of process; he thought that he did so on 14 March
2001, but
was not certain about the matter. He
stated that the document would have been signed on the day when the company was
purchased. He further stated that the
pursuer was intended to be the shareholder in the company; nevertheless, it was
decided that one of the subscriber shares should be transferred to the second
defender and one to the pursuer. His
evidence did not go so far as to state that the 98 shares had actually been
allotted to the pursuer. In a later
passage (22 November 2005, 2.55) Mr Millar stated that he did not recall much
about No 7/9 of process, and did not recognize the handwriting on the form
apart from his signature. Nevertheless,
the form represented his understanding of how the shares should be
allotted. In the circumstances, I do not
think that there is any evidence that Mr Millar actually allotted the shares on
14 March 2001, or indeed on any other date. For the reasons discussed above, I am of
opinion that No 7/9 of process was not completed until July 2001; for that
reason the form does not yield any inference that Mr Millar made a decision to
allot the shares prior to the meeting held on 25 or 26 June
2001. Mr Millar may have had an intention that
the shares should be allotted at some point, but that is plainly not the same
thing as a decision actually to make the allotment.
[35] I
accordingly conclude that the 98 shares had not been allotted prior to the
meeting held on 25 or 26 June 2001.
The defenders' evidence was that they were not aware that the 98 shares
had been allotted prior to that meeting and planned to issue the shares to
themselves, when the pursuer stated that he had had the shares issued to
himself (second defender: 23 November 2005, 12.34; 24 November 2005, 11.01;
first defender: 29 November 2005, 3.28, 3.39).
Similarly, the pursuers were not aware of the existence of No 7/9 of
process at the time of the meeting; its existence only came to light as a
result of inquiries made after the present action was raised (29 November 2005,
3.48). In my opinion, that understanding
was correct. On this basis, the pursuer
has not established the averment referred to in paragraph [33] above, and is
accordingly unable to transfer shares that, according to his account, he
undertook to make over to the defenders at the meeting held on 25 or 26
June 2001. Even if the pursuer had established that the
agreement concluded at that meeting had been in the terms that he claimed, his
lack of ownership of the whole of the shares would have made it impossible for
him to implement the agreement, with the result that he would be unable to
enforce the obligations of the defenders.
This matter is accordingly of itself fatal to the pursuer's case. In addition, as indicated above, it seriously
undermined the pursuer's credibility.
Implement of agreement allegedly concluded on 25 or 26 June 2001
[36] In
his pleadings, the pursuer avers (article 4 of condescendence, first sentence)
that, in implement of the agreement said to have been concluded on 25 or 26
June 2001, he executed and delivered to the first and second defenders two
stock transfer forms in respect of his shares in Manorgate. One form transferred 50 ordinary shares to the
first defender; the second transferred 50 ordinary shares to the second
defender. In fact the two stock transfer
forms that have been produced, Nos 7/16 and 7/17 of process, which the pursuer
claims to have executed in Mr Beattie's office, only transfer 49 shares
each. The two subscriber shares, which
were originally issued to companies associated with the company registration
agents who formed Manorgate, bear to have been transferred by those companies
to, respectively, the pursuer and the second defender by a transfer form dated 14
March 2001
(No 7/19 of process) but not implemented until October 2001. In cross-examination, the pursuer claimed (25
November 2005,
11.32) that he knew that two subscriber shares had been issued, he assumed to
himself and the second defender. He had
not been asked to transfer his subscriber share to the first defender, and he
accordingly assumed that he retained that share; that was only an assumption,
however. He stated that the contrary
indication in the pleadings was a mistake.
This conflict with the pleadings does not help the pursuer's
credibility. In addition, if the
subscriber share that was transferred to the pursuer has been retained by him,
which seems to be the case, it follows that he has not implemented his side of
the agreement that he claims was concluded on 25 or 26 June
2001. Only one share is involved, but that share is
critical to the balance of shareholdings as between the first and second
defenders. The failure to transfer the
share therefore appears material, and would of itself be sufficient reason for
refusing to permit the pursuer to implement the contract.
Stamp Duty
[37] As
mentioned previously, two stock transfer forms for 49 shares each were produced
as Nos 7/16 and 7/17 of process. These
bear to have been executed by the pursuer and to transfer 49 shares to each of
the first and second defenders. When
reference was made to these forms counsel for the defenders objected on the
ground that they were not duly stamped.
Each form carries a £5 stamp, although a manuscript note on No 7/18 of
process suggests that three £5 stamps should be affixed.
[38] The
objection is based on section 14 of the Stamp Act 1891. Section 14(1) provides that, upon the
production of an instrument chargeable with duty as evidence in any court,
notice is to be taken by the judge of any omission or insufficiency in the
stamp thereon. This is subject to an
exception in cases where an offer is made to pay the duty in question. Section 14(4) provides that an instrument
executed in any part of the United Kingdom shall not, except in criminal
proceedings, be given in evidence unless it is duly stamped.
[39] Counsel
for the defenders submitted that the stock transfer forms were a necessary link
in establishing the proposition that ownership of the 98 non-subscriber shares
had been transferred to the first and second defenders. The pursuer had to prove that he implemented
the contract by transferring the shares, and that could only be done by relying
on the stock transfer forms; those were the best evidence of the transfer of
property. The forms state that the
consideration money was £49. On the
pursuer's evidence and his case generally, however, that was clearly untrue; if
his account of the transaction was correct the consideration was plainly much
greater than that. If, by contrast, the
defenders' account of what transpired at the meeting of 25 or 26
June 2001
was correct, no consideration was agreed for the transfer of the shares, and accordingly
it could not be said that the stock transfer forms were inadequately stamped.
[40] Counsel
for the pursuer pointed out that in their defences the defenders admitted that
two stock transfer forms had been executed and delivered. Moreover, Manorgate's annual return as at 19
February 2002 (No 6/7(xiv) of process) indicated that each of the defenders
held 50 ordinary shares in the company; that document had been spoken to before
objection was taken to evidence regarding the stock transfer forms. That, it was submitted, was all that the
pursuer required to establish the transfer of the shares; the statute did not
prohibit parties from agreeing upon the existence of an instrument even though
it was not duly stamped. In any event,
counsel submitted, a distinction fell to be drawn between an instrument which
on its face was not duly stamped and the case where the issue for the court was
whether the instrument had been duly stamped.
In cases of the latter sort, the court should not be assiduous to decide
whether the instrument had been properly stamped: Francesco v De Meo, 1907,
15 SLT 387 (a better report on this issue than 1908 SC 7). Finally, counsel submitted that if the court
were against the pursuer on the issue of whether the stock transfer forms had
been duly stamped, the pursuer would undertake to pay the relevant duty. Authority for such a course, it was
submitted, was found in the decision of Lord Anderson in Weinschel, Petitioner, 1916 2 SLT 346, and the opinions in the
Second Division in Simpson's Trustees v Simpson, 1933 SC 128.
[41] In
view of the terms of section 14, I am of opinion that the two stock transfer
forms, Nos 7/16 and 7/17 of process, are not admissible in evidence if the
pursuer's account of the meeting of 25 or 26 June 2001 is correct. The result of this is that the pursuer is
unable to establish that the 98 non-subscriber shares in Manorgate were ever
transferred to the first and second defenders.
Consequently, even if the pursuer's version of what was agreed at the
meeting on 25 or 26 June 2001 is correct, he cannot demonstrate
that he has fulfilled his part of the bargain agreed at that meeting, and he is
accordingly unable to enforce the defenders' part of the bargain. That result follows in my view from the plain
meaning of section 14 as applied to the two stock transfer forms. It is not disputed that the forms required to
be stamped. If the transfer was for
substantial consideration, it is clear that conveyance on sale duty would be
payable, related to the amount of the consideration. In that event, when the forms were stamped,
the consideration stated in the instrument should have been a proper estimate
of the value of the benefits provided by the first and second defenders to the
pursuer. That could not have been the
sum of £49 that is stated on each of the stock transfer forms. In these circumstances, it seems plain that,
if the pursuer's account of the transaction is correct, the two instruments
were inadequately stamped. Section 14
makes it clear that, if a document has not been properly stamped, the court
must note the insufficiency in the stamp and the document may not be given in
evidence. The result is that the pursuer
cannot found on the two stock transfer forms, nos 7/16 and 7/17 of process.
[42] The
two stock transfer forms are in my opinion essential to establish any transfer
of the 98 non-subscriber shares by the pursuer to the defenders. Counsel for the pursuer relied on certain
admissions in the defences. The relevant
admissions, however, are very limited in their terms; they are as follows:
"Admitted the
pursuer executed and delivered to the defenders two stock transfer forms in
respect of shares in Manorgate under the explanation to follow. Admitted one such form was in favour of the
first defender. Admitted the other form
was in favour of the second defender."
Those admissions only extend to the
delivery of stock transfer forms in favour of the first and second
defenders. They do not establish the
number of shares transferred, and in particular they do not establish whether
the transfer amounted to full implement of the pursuer's obligations under the
bargain that he claims was struck on 25 or 26 June 2001.
In any event the admissions are qualified by an explanation provided
subsequently; this indicates that the defenders contended that the pursuer had
no title to the shares that he purported to transfer. In these circumstances, I am of opinion that
the admissions are not sufficient to demonstrate that the pursuer has fulfilled
his part of the alleged bargain. The
transfer of the 98 shares must accordingly be established by evidence. The best evidence rule requires that the
transfer should be proved by reference to the documents that actually effected
it, and those are the two stock transfer forms.
If it cannot be referred to, the transfer cannot be proved.
[43] Counsel
for the pursuer stated that, if I were against the pursuer on this matter, the
pursuer would undertake to pay the relevant duty. In my opinion, an offer of that sort is not appropriate. Section 14 is subject to an exception where
the party founding on the document undertakes to pay the duty in question, and
that provision has been applied in the cases referred to in paragraph [40] above. In those cases, however, the undertaking was
an unequivocal undertaking to pay the duty.
No such undertaking has been given in the present case. The undertaking given is conditional upon the
court's finding against the pursuer. For
that to happen, however, the court must come to a view on the evidence led at
the proof, and in reaching that view, if the instrument in question has not
been duly stamped, it must ignore that instrument. Consequently, I am obliged to reach a view on
the issues arising at the proof without reference to the two stock transfer
forms. In that event there can be no
room for a subsequent undertaking to pay the duty; if an undertaking is to be
effective it must be given at the time when the instrument is relied on in
evidence or not at all.
[44] Certain
cases were referred to in counsel's submissions, and I should note these
briefly. In Francesco v De Meo, supra, it was held that section 14 does
not compel judges to raise test cases or try doubtful questions regarding the
stamping of instruments. The present
case, however, appears to me to be quite clear.
In Parinv (Hatfield) Ltd v IRC,
4 December 1997, it was held that section 14 prevented a court from
receiving an unstamped document in evidence but did not preclude the court from
resolving disputes without reference to the evidence thus rendered
inadmissible. That assumes, however,
that other evidence is available as to the critical facts, and in this
connection the best evidence rule is of significance. In the present case the best evidence rule
requires the transfer of the shares to be proved by reference to the stock
transfer forms. In Re Brown & Root McDermott Fabricators Ltd's Application, [1996]
STC 483, it was held that section 14 precluded reliance not only on the
document itself but also on secondary evidence of the document. That illustrates the width of the scope of
the section, and indicates why the pursuer is misplaced in relying on
Manorgate's annual return as at 19 February 2002.
In BMBF (No 24) Ltd v IRC, [2002] STC 1450, the rule
regarding secondary evidence was repeated (at paragraph [37]). In that case an attempt was made to adduce
evidence of the delivery of a bill of sale, as distinct from its contents. It was held (at paragraph [38]) that
evidence of the existence of the bill of sale for the purpose of showing that
it was delivered fell foul of the prohibition in section 14(4). That is clearly pertinent to the present
case; what the pursuer requires to show is delivery of the inadequately stamped
stock transfer forms, but doing so is precluded by section 14(4). In Birchall
v Bullough, [1896] 1 QB 325, it
was held that an insufficiently stamped promissory note could be used to
refresh a witness's memory. That was
held permissible, because the note was not admitted as evidence. That has no bearing on the present case,
where the stock transfer forms are required to establish delivery. Finally, in Weinschel, Petitioner, supra, and Simpson's Trustees v Simpson,
supra, it was held that an undertaking could be given in the course of
litigation to have a document stamped, and in that case the document could be
treated as stamped. In the present case,
no unequivocal undertaking to have the stock transfer forms stamped was given. In my opinion that has the consequences
discussed at paragraph [43] above.
Conclusion
[45] For
the foregoing reasons I am of opinion that the pursuer has failed to establish
the elements that are necessary for him to succeed in the action. I will accordingly pronounce decree of
absolvitor.
