Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2011] CSOH 190

CA94/08

OPINION OF LORD HODGE in the cause JAMES STEVENSON GILLESPIE Pursuer; against (1) THOMAS GRAHAM GILLESPIE; (2) ALAN WILKINSON STANFIELD GILLESPIE; (3) THOMAS GILLESPIE, (4) THE PARTNERSHIP OF THOMAS GRAHAM GILLESPIE, ALAN WILKINSON STANFIELD GILLESPIE, JAMES STEVENSON GILLESPIE, GARY STANFIELD GILLESPIE AND THOMAS GILLESPIE AND (5) LAGGAN INVESTMENTS LIMITED and (6) FIFE REGENERATION PARTNERSHIP LTD Defenders: ­­­­­­­­­­­­­­­­­________________

Pursuer: Iain W F Ferguson, Q.C.; Simpson; Semple Fraser LLP

Defender: McIlvride; Anderson Fyfe, LLP

18 November 2011

[1] This opinion, which relates to a site at Easter Balbeggie, Kirkcaldy, Fife ("Easter Balbeggie") is the third of four opinions in the four actions in which I heard a conjoined proof. I have set out the background to the actions and also my findings on many matters which are relevant to all four actions in my opinion in the action relating to the site at Ballochney West (CA 132/08). By Joint Minute in each of the actions the parties have agreed that evidence in any action is, so far as relevant, evidence in the other three actions. I adopt my findings, which I set out in that opinion, as part of this opinion for the sake of brevity and use the same abbreviations. The findings in the other two actions are less directly relevant to this action but are, so far as relevant, part of the picture which has influenced me in reaching the determinations which I have made.

[2] Mr Steven Gillespie seeks a declarator that he, his brothers and their cousin, Thomas Gillespie, are partners of a partnership established to acquire interests in, develop, and exploit a site at Easter Balbeggie. He also seeks declarators that Laggan Investments Limited ("Laggan"), an Isle of Man company owned by Mr Thomas Gillespie, held Easter Balbeggie in trust for the partnership until it sold the site to Fife Regeneration Partnership Limited ("FRP") in April 2008 and that FRP now hold the site in trust for the partnership. Mr Graham Gillespie, his son, Mr Scott Gillespie, and his young brother, Mr Alan Gillespie, have been the directors and shareholders of FRP since April 1998.

The acquisition and exploitation of Easter Balbeggie

[3] The site which I describe as Easter Balbeggie is an amalgamation of three plots of land at Easter Balbeggie, Kirkcaldy which comprise (i) 83.4 hectares of land which is Easter Balbeggie Farm, (ii) a plot known as Thornton Mine Caravan Storage and (iii) a scrap yard of 2.7 hectares. It appears from correspondence in Keegan Walker's file that Mr Steven Gillespie took the lead in assembling the site in later 1995 and early 1996. Missives to purchase the site were entered into in the names of various companies, which the Gillespie brothers controlled, but it was envisaged that title to the properties which were to be purchased would be taken in the name of Laggan and Piula. Thus, on 23 October 1996 Mr Steven Gillespie and Mr Graham Gillespie as directors of Gillmur Limited instructed Keegan Walker to take the title to Easter Balbeggie Farm in Laggan's name.

[4] Piula acquired title to the scrap yard in May 1996 at a price of £350,000. It disponed the scrap yard for £595,000 to Laggan which registered its title on 5 November 1996. Laggan also acquired title to Easter Balbeggie Farm and it registered its title on 30 October 1996. The date of entry was 23 October 1996 and the price which Laggan paid was £810,000. In about October 1996 JWS acquired a tenancy of Thornton Mine Caravan Storage. By this means Easter Balbeggie was brought under the control of members of the Gillespie family.

[5] The context of these transactions, as I have stated in my opinion in the Ballochney West action, was the financial difficulties which JWS faced and its need for continuity of access to opencast mining opportunities. JWS was not able to borrow funds to acquire Easter Balbeggie. Mr Graham Gillespie approached his cousin, Mr Thomas Gillespie, to see if he could assist in acquiring the land. He was willing to invest. The proposal, which Mr Thomas Gillespie recorded in a letter dated 21 November 1995, was that an offshore company would obtain funding to acquire the land, mine it, reinstate and consolidate it and make it suitable for housing or industrial development. Accordingly, with the agreement of the Gillespie brothers, he made the following arrangement to fund the acquisition of the site and enable JWS to exploit the coal reserves on it. His employer, Bank Austria, arranged that one of its subsidiaries, LBITS, should fund Laggan's purchase of the site. LBITS obtained a security from Laggan over the site. Mr Thomas Gillespie and his wife supported the transaction with personal guarantees. LBITS owned the coal once it was extracted and sold it to Scottish Power plc and Scottish & Southern Energy plc. Laggan employed JWS as a contractor to mine the site and paid it a price per tonne to perform those services. Bank Austria used other employees to investigate the proposal and Mr Thomas Gillespie took no part in the approval process. Site assembly was completed by Laggan's acquisition of the scrap yard. Initially, Piula purchased the scrap yard when the owner wished to sell it. As stated above, it sold on to Laggan at a profit in October 1996 once Laggan was in funds.

[6] Between 1996 and 1999 JWS extracted coal from the site under a licence agreement with Laggan, opencast operating licences from the Coal Authority and other licences, the details of which are not important in this context. As JWS did not own the coal, it did not pay royalties to Laggan. Thus the understanding of the brothers when they negotiated the draft agreements was incorrect when they spoke of sharing the royalties from Easter Balbeggie. The site was partially restored when JWS ceased operations in 1999. Thereafter, GM Mining Limited ("GM"), a joint venture company in which the Gillespie brothers had an interest, took over the exploitation of the site and mined coal on an extension of the site. Coal extraction ceased in about 2002. GM carried out further restoration works to the site under a restoration agreement with Laggan dated 29 January and 1 February 2007.

Plans to develop Easter Balbeggie

[7] It is clear that, after Laggan acquired the site, several of the Gillespie brothers were active in managing the site and exploring the potential of the site once it had been restored. For example, in June 1997 Mr Steven Gillespie in his capacity as a director of JWS organised the resale by Laggan of Easter Balbeggie farmhouse to Mr Leggate, who had sold the farm to Laggan in the previous year, after Mr Leggate had not found suitable alternative accommodation. Internal documents of GGSL revealed proposals in 1999 that "the Gillespies" would organise all restoration works at Easter Balbeggie at their own cost to obtain the release of restoration bonds and that they would fund the public inquiry to extend the site that could be mined. GIL arranged a winter let of part of the site for sheep grazing on 2004/2005.

[8] Mr Gary Gillespie on behalf of Gillespie companies engaged professional firms to investigate the potential of the site for residential and commercial development and to seek political support for development proposals. Thus for several years GIL sponsored a "Highland Gathering" in Thornton. GIL employed James Barr Limited in 2006 to submit a planning representation to Fife Council and to meet with the Council. In January 2007 James Barr Limited prepared an employment and investment briefing paper for GSPL. JMP and James Barr Limited assisted GIL's presentation to councillors of Fife Council and an assistant of Gordon Brown MP. The presentation stated that part of the site was land controlled by GIL. See also paragraph [59] of my opinion in the Ballochney West action, in which I record the evidence of third parties about the involvement of each of the Gillespie brothers. It is clear that Mr Thomas Gillespie, who lived in Vienna, took no active part in this work. It may readily be inferred from this that the Gillespie brothers who took an interest in the site believed that they stood to gain financially from its development.

The sale of Easter Balbeggie

[9] A valuation of the site for or by Dunfermline Building Society in about 2008 stated its value at £24 million. The parties did not produce the valuation or explore in evidence the basis for such a value. Mr Graham Gillespie in 2007 or early 2008 approached Mr Thomas Gillespie and offered to pay £6,550,000 for the site. Mr Thomas Gillespie agreed. In his evidence he stated that he considered that to be a reasonable price and that he understood that it was the maximum that the purchaser could borrow. He also expressed the view that the valuation of £24 million was "ludicrous". Laggan conveyed the site to FRP for £6,550,000 by disposition dated 4 April 2008. The date of entry was 7 April 2008 and FRP's title was registered on 15 April 2008. As the shares of FRP are owned by Messrs Graham, Alan and Scott Gillespie, it is they who now have an interest in the site.

[10] Absent any planning permission for a specific development or support in the local plan for such development, I can reach no view as to the realism of a valuation of £24 million. But the Gillespie brothers used that valuation to support representations to Dunfermline Building Society in "statements of means" which they signed in early April 2008. Further, Biggart Baillie LLP, which acted for Dunfermline Building Society, took steps to protect its clients against a possible claim under Isle of Man law for a sale by a company of an asset at an undervalue by obtaining an indemnity from Mr Thomas Gillespie on behalf of Laggan and an undertaking that it would repay the debt of its only creditor out of the sale proceeds.

Mr Steven Gillespie's contentions

[11] Mr Ferguson QC on behalf of Mr Steven Gillespie submitted that the evidence demonstrated that the brothers had entered into a partnership with Mr Thomas Gillespie in 1996, when they agreed to the acquisition of the site by Laggan. The understanding of the parties was demonstrated by Mr Steven Gillespie's instruction for the preparation of a minute of agreement in November 1998, by the documents produced in the settlement negotiations and by the draft agreements in 2000. The involvement of the Gillespie brothers in promoting the development of the site while it remained in the ownership of Laggan, and the use of the funds of GIL and GSPL to engage professionals to that end, supported the view that throughout they had an interest in the site. This was the understanding of the third party witnesses who dealt with them at Easter Balbeggie. In the absence of any credible alternative explanation the court should conclude that there was a partnership.

The defenders' contentions

[12] Mr McIlvride on behalf of the defenders submitted that once again there was no specification by Mr Steven Gillespie of when and how the alleged agreement to enter into a partnership came about. The explanation for the transactions was that JWS was in financial difficulty and the arrangement was designed to allow it to maintain the continuity of its mining operations on a site which it otherwise could not have afforded to acquire. Mr Thomas Gillespie, as both he and Mr Graham Gillespie testified, had the only economic interest in Laggan. He arranged the funding and he and his wife gave the needed personal guarantees. Whatever may have been Mr Steven Gillespie's understanding in 1998 when he instructed the draft minute of agreement or the understanding of the Gillespie brothers in the negotiations in 2000, Mr Thomas Gillespie never saw that document and was not a party to those discussions. Contrary to the apparent understanding in those negotiations, no royalties were paid to Laggan for the mining of Easter Balbeggie. Mr Graham Gillespie acted in the belief that he could arrange the repurchase of the site from his cousin. That explained the brothers' activity to promote the site. If there had been a partnership as Mr Steven Gillespie contended, the parties would not have acted in the way in which they did.

Discussion

[13] In my opinion in the Ballochney West action I set out my views on the credibility and reliability of the leading witnesses. See paragraphs [15] and [16] and [44] - [47]. I also set out the background to all of the transactions which were the subject of these actions, and in particular the financial difficulties of JWS. The general practice of the Gillespie brothers to share business ventures but to take title to a property in the name of one individual, or a company in which one or some but not all were shareholders, is also an important part of that background.

[14] I am satisfied that by 1998 Mr Steven Gillespie thought that he had an interest in the Easter Balbeggie development. His instruction to Keegan Walker to prepare the Minute of Agreement concerning that site, which I discussed in paragraphs [17] -[19] of my opinion in the Ballochney West action supports that view. So also does his stance in the negotiations in 2000 in Mr Paterson's letter of 19 August 2000. His brothers' acceptance of that position in Mr Paterson's letter of 29 August 2000 supports the view that they also thought that they had some interest in the site. Mr Graham Gillespie's letter of 4 October 2000 in which he spoke of Mr Steven Gillespie having a less than 20% shareholding in joint venture companies does not on its face relate to Laggan and could refer to G M Mining Limited, First Choice Stallions Limited and New Brannock Limited. As I have said in the Ballochney West opinion at paragraph [70], the second draft agreement, which the solicitors prepared, showed uncertainty as to the nature of any rights which the brothers might have in relation to the Ballochney West and Easter Balbeggie sites.

[15] Mr Graham Gillespie's letter to Mr Gary Gillespie dated 22 March 2006 also suggests that there was an understanding that the brothers would share in any future profits from the development of Easter Balbeggie. See paragraphs [36] - [39] of my opinion in the Ballochney West action. The "Gillespie Investments Portfolio", which I discussed in paragraphs [55] and [56] of that opinion, also points to some understanding of a family interest in the development of Easter Balbeggie. But the inaccuracy of the relevant entry and its lack of specification mean that it provides little assistance in determining the nature of that interest or expectation.

[16] Similarly, the work which family members carried out in promoting the development of the site is consistent with a belief that some or all of the Gillespie brothers stood to gain from its restoration and development after mineral extraction had ended. But, again, that activity does not disclose the nature of that interest or expectation. Nor do the perceptions of third parties, which I discussed in paragraphs [57] - [60] in my opinion in the Ballochney West action, add much to clarify this issue. I am left with the impression that the members of the Gillespie family who carried out work in relation to Easter Balbeggie had an expectation of profiting in some way from its development but that does not go far enough to establish on balance of probabilities that the Gillespie brothers had entered into a partnership with Mr Thomas Gillespie in about 1996 in relation to the site.

[17] As I stated in the Ballochney West action, I accept Mr Thomas Gillespie's testimony that he did not, subjectively, agree to enter into a relationship of partnership with his cousins. Having regard to his commercial background and the financial difficulties which they faced in their main business vehicle, JWS, his approach of providing financial assistance and gaining control over assets to safeguard his investment seems sensible. His willingness to agree with Mr Graham Gillespie to sell the site to FRP at an apparent undervalue is consistent with an intention from the outset to assist his cousins and also make a profit for himself. The sale also does not point to a belief on his part that Laggan held the site in trust for a partnership of which he and his cousins were the partners.

[18] The matter, of course, is not determined by his subjective understanding. One must look for objective evidence in the actions of the parties which points to either a shared understanding that such a relationship existed or, whatever their subjective understanding, the existence of that business association with a view of profit. I am struck by the absence of evidence of such an understanding or, otherwise, of the existence of a partnership in relation to Easter Balbeggie. If either Mr Thomas Gillespie or any of the Gillespie brothers had thought that they had entered into a partnership, I would have expected that there would be some document which in some way directly or indirectly acknowledged that relationship. The only document which points in that direction is the draft minute of agreement which Mr Steven Gillespie instructed in 1998 but which was not sent to his brothers or to Mr Thomas Gillespie.

[19] If the Gillespie brothers shared an understanding that they were partners in this partnership, it is strange that the letters vouching the negotiations in 2000 and draft agreements did not disclose it. Similarly, the family members behind FRP, when they instructed the purchase of the Easter Balbeggie site, showed no belief that Laggan held it in trust for a partnership of which they, two of the brothers, and their cousin were partners. When FRP purchased the site, Mr Graham Gillespie was involved in disputes with his brothers, Mr Steven Gillespie and Mr Gary Gillespie. Thus it was the other members of the family who took shares in FRP. It may be that Mr Graham Gillespie originally envisaged regaining ownership of the site from Laggan though an entity in which all four brothers would have an interest but the disputes intervened. His evidence was that he was confident that he could re-acquire the site from Mr Thomas Gillespie and that he acted on that basis.

[20] While it is difficult to reconstruct events where there is a paucity of contemporaneous documentation and reliable recollection, I consider that the arrangement by which Mr Thomas Gillespie assisted his cousins involved (i) the provision of funds through Laggan to acquire Easter Balbeggie so that JWS could mine it, (ii) the protection of his investment by taking title to the site in Laggan's name, and (iii) his willingness eventually to sell the site to his cousins at a profit, albeit at an apparent undervalue. Accordingly, I conclude that Mr Steven Gillespie has not proved that there was an agreement between the parties in late 1995 or in 1996 to establish a partnership to acquire, exploit and develop the site at Easter Balbeggie.

Waiver

[22] For the reasons which I set out in paragraphs [74] - [76] of my opinion in the Ballochney West action I reject the defence that Mr Steven Gillespie agreed to waive his claims in 2002.

Conclusion

[23] I have concluded that Mr Steven Gillespie has not proved the existence of a partnership of which he has sought a declarator. I therefore repel the pleas of waiver and personal bar or resignation, being the sixteenth plea in law for the first and second defenders, the seventeenth plea in law for the third defender, the tenth plea in law for the fifth defender and the tenth plea in law for the sixth defender. I sustain the fourth to sixth pleas in law for the first, second and third defenders, the third to sixth pleas in law for the fifth and sixth defenders, repel the second to fifth pleas in law for the pursuer, and grant decree of absolvitor. I reserve, and will have the case put out by order to deal with, all questions of expenses.