Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2011] CSOH 191
CA128/08	OPINION OF LORD HODGE in the cause JAMES STEVENSON GILLESPIE Pursuer; against (1) THOMAS GRAHAM GILLESPIE, (2) ALAN WILKINSON STANFIELD GILLESPIE, (3) THE PARTNERSHIP OF THOMAS GRAHAM GILLESPIE, ALAN WILKINSON STANFIELD GILLESPIE, JAMES STEVENSON GILLESPIE AND GARY STANFIELD GILLESPIE AND (4) AIRDRIE NORTH LIMITED Defender: ­­­­­­­­­­­­­­­­­________________

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

Defender: McIlvride; Anderson Fyfe LLP

18 November 2011

[1] This opinion, which relates to a site which comprised several parcels of land in the vicinity of Legbrannock Road, Motherwell, is the fourth opinion in the four actions in which I heard a conjoined proof. The composite site which was mined was known as New Brannock and the later development site, which included New Brannock, was called Torrance Park. I have set out the background to the actions and also my findings on 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. My 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] The Gillespie brothers assembled the site, which came to be called Torrance Park, in the following manner. The site comprised six parcels of land which they named after the farms of which they had formed part or after the names of the selling landowners. First, GSGA (Coal Marketing) Limited ("GSGACM"), a company whose name was an acronym derived from the initials of the brothers' names, of which each brother was a director, and which, like JWS, was a wholly-owned subsidiary of GGSL, acquired Foulyett Farm, a site of 35.3 hectares, in 1990. The acquisition price was £49,917.35 and GSGACM took entry on 23 April 1990. Secondly, JWS acquired Legbrannock Farm, which comprised 35.8 hectares, by disposition dated 22 October 1992. The purchase price was £249,000 and the date of entry was 22 October 1992. Thirdly, GSGACM acquired Greenside Farm by disposition dated 9 June 1994, with a date of entry of 1 June 1994. The site comprised 8.4 hectares and the purchase price was £70,000. Fourthly, Mr Graham Gillespie took title to Snowies Farm, by disposition dated 19 September 1994. The acquisition price was £175,000 and the date of entry was 19 September 1994. Fifthly, JWS entered into missives to acquire Coltman Farm, which comprised 14.2 hectares, in August 1995 and title was taken to the farm by New Brannock Limited ("NBL") with a date of entry of 31 August 1995. The purchase price was £150,000, which Sir David Murray lent to NBL. Finally, in about August 1998, Mr Graham Gillespie entered into an option agreement to purchase Sawyers Farm, which comprised 13.97 hectares. A disposition conveyed the property to NBL for a price of £176,967.70 with a date of entry of 28 November 1998. NBL's title was registered on 19 August 1998.

[3] NBL was incorporated on 29 August 1995. Two shares were issued after incorporation to Sir David Murray. He remained the sole registered shareholder of NBL until 3 September 2001, when a further 998 shares were issued at par. 498 of those shares were allotted to Sir David Murray and 500 to Mr Graham Gillespie. Thus each held 50 per cent of the shares in NBL.

[4] In August 1998 the first four farms, which JWS had mined, were conveyed to NBL. I list each farm with its purchase price in this transaction in parentheses. They were Foulyett Farm (£49,975.75), Legbrannock Farm (£249,000), Snowies Farm (£231,647.26), and Greenside Farm (£70,000). In each case NBL's title was registered on 19 August 1998 and the date of entry was 28 November 1998. With the exception of Snowies Farm, the prices paid for these farms were the same as or similar to those which their previous acquirers had paid. Mr Graham Gillespie received more for Snowies Farm to reimburse him for the interest which he had paid on the bank loan to purchase that asset.

[5] The transfer of the farms to NBL followed an agreement, called Heads of Agreement, dated 5 April 1995 between Sir David Murray, Mr Graham Gillespie, GGSL, GSGACM, JWS and NBL. The Heads of Agreement recorded that Mr Graham Gillespie and Sir David Murray had agreed to enter into a joint venture to develop the site comprising the four parcels of land together with the land purchased from Mrs Coltman and from the Sawyers family for mixed residential, commercial and leisure uses. In the agreement Sir David Murray and Mr Graham Gillespie agreed to subscribe for shares in a joint venture company (NBL) and that Mr Graham Gillespie would hold 60 per cent of the equity, including that percentage of the net realised profits, and Sir David Murray 40 per cent. As stated above, the eventual division of the shares did not follow the agreement but each held a 50 per cent stake. The agreement provided that NBL would acquire the four farms at the prices which GSGACM, JWS and Mr Graham Gillespie had paid for them. It also provided for Sir David Murray and Mr Graham Gillespie to be reimbursed their expenditure in the acquisition of Snowies Farm and Coltman Farm. Each of Sir David Murray and Mr Graham Gillespie were empowered to appoint two directors to the board of NBL but Mr Graham Gillespie was given ultimate responsibility for the day-to-day running of the company and final authority over management decisions. The agreement also provided that the development would be known as the Torrance Park Development.

[6] It was not disputed that the Gillespie brothers acquired the initial four farms in order to allow JWS to extract coal from the land by opencast mining. JWS did so. It was suggested in evidence that coal was extracted from the parcel of ground purchased from Mrs Coltman before it was prepared for development; but this evidence was not entirely clear and is in any event of no moment. The joint venture in relation to NBL was entered into to enable the subsequent development of the site as a whole. In a similar way to his claims in the other three actions, Mr Steven Gillespie asserts in this action that there was a partnership between the four brothers in relation to the acquisition of and extraction of minerals from Torrance Park and its subsequent development and sale. The defenders are his brothers Graham and Alan, the alleged partnership and Airdrie North Limited ("ANL"), which is a company which was incorporated in 2005. Mr Graham Gillespie is the sole shareholder in and director of ANL.

[7] ANL's involvement in Torrance Park and thus in this action came about in the following way. On 1 February 2007 Mr Graham Gillespie sold the 500 shares in NBL which were registered in his name to Murray International Holdings Limited ("MIH") for £950,000. At about that time ANL and MIH entered into two undated profit share agreements. In the first, which concerned Torrance Park and Kingdom Park, MIH undertook to pay ANL stated proportions of the net profits of the disposal of those subjects depending on the level of those profits. If the net profits were £10 million or less, MIH was to retain those profits. Between £10 million and £20 million, ANL was to receive 20 per cent of that tranche and if the net profits exceeded £20 million, ANL was to receive 40 per cent of that excess. In the second, ANL and MIH entered into a similar arrangement in relation to the net profits from the development of sites known as Drumshangie and Boglea.

[8] Mr Steven Gillespie seeks declarators in relation to the partnership, whose existence he asserts, and an accounting by Mr Graham Gillespie, Mr Alan Gillespie and ANL for the sums which they received as a result of the sale of the four farms in 1998 and the sale of the shares in NBL in 2007.

The exploitation of the site and the operation of New Brannock Limited
[9] Mr Steven Gillespie gave evidence, which was not contradicted and which I accept, that he had identified the potential of the parcels of land at New Brannock for opencast coal mining. Nor was it disputed that the first four parcels of land, which were purchased in the early to mid 1990s, were acquired in order to allow JWS to exploit the coal deposits on them. Mr Steven Gillespie asserted and Mr Graham Gillespie accepted that the brothers selected a person to acquire a parcel of ground if that entity or individual had access to borrowings at the relevant time. JWS's financial difficulties meant that the bank would not extend further credit to it. Mr Graham Gillespie accepted that he had borrowed money to purchase Snowies Farm to enable JWS to exploit the coal reserves and not as a private investment. It appears that from the mid 1990s at the latest the Gillespie brothers envisaged that there was a prospect of developing the site after coal had been extracted from it. The transfer of the parcels of land to NBL and the joint venture in relation to that company was designed to gain Sir David Murray's financial support for that development. The fundamental issue between the parties is whether the other party to the joint venture with Sir David Murray was Mr Graham Gillespie on his own behalf or whether he held that interest as a partner of a partnership with his brothers.

[10] From 29 August 1995 the directors of NBL were, for the Murray interest, Sir David Murray and Mr Ian Tudhope, who was company secretary of MIH. Mr Graham Gillespie and Mr Steven Gillespie were the other two directors. Mr Steven Gillespie ceased to be a director of NBL with effect from 13 December 2000 after his fight with Mr Graham Gillespie in July 2000 and the incident with Mr Alan Gillespie in early December 2000. His resignation as a director was recorded at a meeting of NBL's board on 13 June 2001 and Mr Alan Gillespie was appointed to replace him on that date. During his time as director Mr Steven Gillespie was not paid for his services. He attended several board meetings while at others Mr Graham Gillespie was the only representative of the Gillespie interest. When asked why his brother should have acted gratuitously as a director between 1995 and 2000, Mr Graham Gillespie answered that it was because he would have shared with his brothers any profit which he made from the development. When prompted, he also stated that it was to achieve a balance on the board of NBL.

[11] From the mid 1990s the Gillespie brothers and then NBL sought to obtain planning permission for the development of Torrance Park. The evidence was not clear on the sequence of events. There appears to have been a prospect of planning permission for a golf course and possibly other development in 1997. At some stage thereafter the proposed development became a scheme for housing, a hotel, a golf course and a sports and leisure centre. The Scottish Ministers called in a planning application for their determination in about 2000. Full planning permission was obtained some time in 2005. It appears that permission had been granted at an earlier date for the construction of the golf course which became the first phase of the development. NBL had to borrow increasingly large sums of money to progress the development as the creation of the golf course before embarking on more remunerative development involved expenditure on which there was no real prospect of a prompt return.

[12] On 21 June 2001 Mr Graham Gillespie granted the Bank of Scotland a personal guarantee for £660,000 in relation to NBL's liabilities. On 22 March 2004 he amended the guarantee to increase his exposure to £820,000. Sir David Murray also granted guarantees in relation to NBL. None of the other Gillespie brothers granted any personal guarantees in relation to NBL's indebtedness. Mr Graham Gillespie granted the bank a security over Ballochney East in support of his guarantees. On 1 February 2007, when the shares in NBL were sold to MIH, the bank granted Mr Graham Gillespie a deed of release of his guarantee obligations. There was a suggestion in the cross-examination of Mr Steven Gillespie that the family interests in the venture had changed in 2001 when of the Gillespie brothers only Mr Graham Gillespie was prepared to give a personal guarantee in support of NBL's borrowings. There was at least a hint of that line in the defences to the action. But Mr Graham Gillespie denied that that was the case and asserted that from the outset he had entered the joint venture with Sir David Murray on his own behalf, that he had discussed this with his brothers and that they had agreed. Mr Steven Gillespie denied any such discussion or agreement.

[13] As in the other actions, the parties led evidence from third parties about who they understood to have an interest in the site. I set out my views on that evidence in paragraphs [57] to [60] in my opinion in the Ballochney West action. I also had the benefit of the evidence of Mr Donald Wilson, who at the material time had been group financial director of the Murray group of companies. He was responsible for organising the Murray interest in NBL. He had not been involved in the deal which created NBL. He explained that he saw each of the Gillespie brothers from time to time. He had dealings with Mr Steven Gillespie but he saw Mr Graham Gillespie more frequently than the others. He explained that Mr Graham Gillespie had the most dealings with Sir David Murray and that they made the deals in relation to Torrance Park. He explained in his written witness statement that he was interested only in the Murray side of things did not know what legal structure the Gillespies may have had. He was asked to comment on a flow chart document which he had prepared in January 2002. The chart showed the current group structure in relation to certain companies and the personal structure in relation to NBL. It referred to "Gillespies" or "The Gillespie Family" and recorded that Sir David Murray and "The Gillespie Family" were exposed to personal guarantees in relation to NBL. A table in that chart showed the shareholders of NBL and GM Mining Limited to be "DEM" (Sir David Murray) and "TGF". He explained that "TGF" was an acronym of the Gillespie family.

[14] He also commented on correspondence which he had with Mr Graham Gillespie in March 2006, when he wrote to summarise what had been discussed in a meeting between Sir David Murray and Mr Graham Gillespie to reduce the consolidated debt of joint ventures, including Torrance Park, in which they were involved. In his letter of 8 March 2006 he proposed the acquisition of Torrance Park from NBL for the current debt which was attributable to the site and also the acquisition of Kingdom Park. He spoke in the letter of contracting with "The Gillespie Group" to establish a plan for the development of Drumshangie, Ballochney and Boglea and about the ultimate sharing between "Murray" and "Gillespie" of excess profits in respect of, among others, Torrance Park. In his reply dated 29 March 2006 Mr Graham Gillespie expressed concerns about the proposals and stated that while he supported the suggested plans, he was perplexed "as to why I should be penalised for putting my holdings in New Brannock behind the plan." In his oral evidence Mr Wilson stated that his use of "The Gillespie Family" and "Gillespie" in the documents was designed not to upset members of the Gillespie family and that he did not know "how Graham carved up the spoils."

[15] As in the other actions, the best evidence of the understanding of the parties as to who had interests in the proposed development of Torrance Park comes from the documents which were created during the settlement negotiations in 2000. I have referred to those documents in some detail in my opinion in the Ballochney West action and discuss them more briefly below.

The Pursuer's contentions
[16] Mr Ferguson QC on behalf of Mr Steven Gillespie submitted that the balance of the evidence supported the view that the Gillespie brothers were partners in a joint venture in relation to Torrance Park. He founded on the transfer of the land to NBL at cost price at a time when the bank was putting pressure on the Gillespies to reduce their indebtedness. He relied particularly on the documents in the file of Golds, solicitors, relating to the negotiations in 2000, and also on Mr Donald Wilson's flow chart. Further, he submitted that no credible explanation had been given for Mr Steven Gillespie's gratuitous service as a director of NBL between 1995 and 2000 if he was not expected to gain from the development of Torrance Park. He pointed out that Mr Graham Gillespie had received £950,000 for his shares in NBL but had not declared any gain in his tax return. This, Mr Ferguson submitted, was illustrative of his dishonesty.

The Defenders' contentions
[17] Mr McIlvride for the defenders submitted that the first four parcels of land had been acquired initially to mine coal. That involved a joint venture between the brothers as the family companies, which purchased the land, were subsidiaries of GGSL, which was jointly owned. Mr Graham Gillespie also acquired Snowies farm for that purpose. But the crucial question was the nature of the agreement between the brothers when it was agreed to sell New Brannock to NBL. Mr Steven Gillespie and Mr Graham Gillespie were the principal witnesses and their evidence was conflicting. He invited me to prefer the evidence of Mr Graham Gillespie. He and Sir David Murray were in a position to obtain funds for the development of Torrance Park. The bank would not fund NBL without the support of personal guarantees and only they gave such guarantees. The arrangement was not unreasonable: JWS received funds to reduce its borrowings and NBL obtained land which others were not interested in acquiring. The fact that first Mr Steven Gillespie and then Mr Alan Gillespie were directors of NBL was explained by the need to balance the Gillespie interest against the Murray interest on the board of NBL. It was telling that Mr Graham Gillespie in his letter of 29 March 2006 to Mr Wilson had spoken of "my holdings" in NBL. He invited me to accept Mr Graham Gillespie's evidence that the indications in the documents, which were created during the settlement negotiations in 2000, that the Gillespie shares in NBL, once they were issued, were to be held equally by the four brothers, were an error by the parties' advisers. Mr Graham Gillespie's position was that he chose whether or not his brothers were to share with him in his business ventures.

Discussion
[18] My findings on the financial difficulties of JWS and on the credibility and reliability of the principal witnesses, which I made in paragraphs [12] - [16] of my opinion in the Ballochney West action, apply equally to this action. Again, the relevant background includes both the financial difficulties of JWS in the mid 1990s and the family practice of taking title to property in the name of one of the brothers, or a company under the control of one or more of the brothers, although all the brothers had an interest in that property. This practice, based on trust between the brothers, was then the norm.

[19] The crux of the dispute is whether there was an agreement between the brothers in relation to the Torrance Park site under which Mr Graham Gillespie held his interest in NBL in a joint venture or partnership with his brothers. Mr Steven Gillespie asserted that there was. Mr Graham Gillespie denied this. He drew a clear distinction between the sharing of the profits from the land when coal was extracted and the later development of the land. He gave evidence that no one, other than NBL, was interested in the land after it had been mined. He alone had an interest in the Gillespie stake in NBL and that it was entirely at his discretion whether he shared any profits which he made with his brothers. The terms of the Heads of Agreement, to which I referred in paragraph [5] above, are consistent with his assertion as the document could easily have referred to the interests of all four brothers in the venture, but it did not. The letter, which Mr Graham Gillespie wrote to his brother, Gary, on 22 March 2006, which I discussed in paragraphs [36] to [39] of my opinion in the Ballochney West action, also supports his contention to the extent that he there recorded his assertion that he chose to share developments with his brothers. But the letter is equally supportive of Mr Steven Gillespie's position as Mr Graham Gillespie spoke in that letter of his having given shares in Torrance Park to his brothers.

[20] I bear in mind the "Gillespie Investments Portfolio" which included Torrance Park in the ownership of NBL as part of the family property portfolio. But, as in the Ballochney West and the Easter Balbeggie cases, I do not attach much weight to the document because of its inaccuracies. I take account of the fact that the Gillespie brothers authorised the transfer of the parcels of land to NBL at or about cost price but cannot draw any firm conclusions from that. Mr Graham Gillespie asserted that the land once mined was less valuable than when purchased. None of the parties led any expert evidence or referred to any valuations which showed the value of the land after coal had been extracted. Mr Donald Wilson's document, to which I referred in paragraph [13] above, is consistent with Mr Steven Gillespie's case and his comment about Mr Graham Gillespie "carving up the spoils" is at least as consistent with his being a managing partner as with his being an outright owner of the Gillespie interest.

[21] The clearest and most reliable evidence of the brothers' understanding, as in the other cases, is contained in correspondence generated by the negotiations in the autumn of 2000 and the draft agreements which solicitors prepared on their instructions. I discussed the documents in paragraphs [20] to [35] of my opinion in the Ballochney West action. In those documents the position of the parties in relation to the shares in NBL was very clear. In particular, Mr Graham Gillespie's letter of 4 October 2000 in which he referred to there being a less than 25 per cent shareholding in joint venture companies and Mr Paterson's letter of 9 October 2000, in which he referred to NBL as "a joint venture between the Gillespie brothers and David Murray", support the view that it was accepted then that the Gillespie brothers had entered into a joint venture in relation to the development of Torrance Park. The first of the two draft agreements, which were prepared after the composite draft agreement was split into two, again made the matter clear as it stated that each of the brothers had a share in NBL which was "25% of Gillespie holding". This was the draft which Mr McIntyre labelled as "slightly more legit." As I have held in my opinion in the Ballochney West action, I do not accept Mr Graham Gillespie's evidence that the solicitors and Mr Frank Paterson misunderstood his instructions. Absent a credible explanation for the positions which the parties took in those negotiations and having regard to the background circumstances which I have mentioned, I do not accept Mr Graham Gillespie's evidence that he alone had an interest in the Gillespie stake in NBL.

[22] I conclude that at the time the joint venture to develop Torrance Park was set up with Sir David Murray in the incorporation of NBL and the transfer of the parcels of land to it, it was envisaged that Mr Graham Gillespie would hold his interest in the venture and later his shares in NBL for the benefit of all four brothers. That arrangement was not altered in 2001 when he and Sir David Murray granted personal guarantees for NBL's indebtedness.

[23] Mr Steven Gillespie seeks a declarator of the existence of a partnership. For the reasons which I set out in paragraphs [28] and [29] of my opinion in the Ballochney East action (CA 126/08) mutatis mutandis, I am satisfied that he is entitled to a declarator of the existence of the partnership in relation to the Torrance Park development and an equal sharing of its profits, if any.

[24] For the reasons set out in paragraphs [74] to [76] of my opinion in the Ballochney West action, I reject the defence of waiver contained in the plea in law that the pursuer had agreed to resign from the partnership.

Conclusion
[25] I propose to repel the defenders' third, fourth, fifth and seventh pleas in law, to sustain the pursuer's second, third and fourth pleas in law and to grant certain declarators. As in the Ballochney East action, I wish to be addressed on the terms of the proposed declarators. I will therefore have the case put out by order to allow parties to address me on that matter and on the question of the expenses of the action to date.