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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> McAuley or Chalmers v Chalmers (otherwise Christopher Chalmers) [2014] ScotCS CSOH_161 (07 November 2014) URL: http://www.bailii.org/scot/cases/ScotCS/2014/[2014]CSOH161.html Cite as: [2014] ScotCS CSOH_161 |
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OUTER HOUSE, COURT OF SESSION
[2014] CSOH 161
A532/12
OPINION OF LORD BOYD OF DUNCANSBY
In the cause
THERESE MARGARET McAULEY or CHALMERS
Pursuer;
against
CHRIS JOHN WILLIAMS CHALMERS (otherwise CHRISTOPHER CHALMERS)
Defender:
Pursuer: Tariq; Harper Macleod LLP
Defender: Logan; Murphy Robb Sutherland
7 November 2014
Introduction
[1] This is an action of reduction of a disposition. The property to which it refers is a flat at 38 Hotspur Street, Glasgow. The disposition purports to convey the property from the pursuer to the defender for love, favour and affection. It purports to have been signed and executed by the pursuer in the defender’s favour on 16 March 2006. It was recorded in the Land Register on 9 April 2008. It is a matter of concession that the signature which purports to be that of the pursuer was forged.
[2] The pursuer is the defender’s mother. She was married to Paul Chalmers, the defender’s father for about 30 years. There are two children of the relationship, the defender Chris (otherwise Christopher) Chalmers and a daughter, Natalie. Therese Chalmers and Paul Chalmers were divorced by decree of the Court of Session in February 2013. The financial issues between the parties were settled with the signing of a minute of agreement dated 12 November and registered in the Books of Council and Session on 15 November 2012.
[3] The pursuer and Paul Chalmers were formerly the sole partners in a firm called Rentier Property. (In many documents the firm is known as Rentier Properties. However the name used by Inland Revenue/HMRC and in the minute of agreement is Rentier Property). The firm rented out a number of properties. It was in effect a family business. It was not a matter of dispute that although Mrs Chalmers was a partner in the firm the business was handled by Paul Chalmers. The partnership was dissolved with the signing of the minute of agreement and Paul Chalmers continued on with the business.
[4] One of the main issues in the case is whether or not 38 Hotspur Street was part of the Rentier Property portfolio.
Witnesses
[5] Evidence was led for the pursuer from the pursuer herself, Janice Jones, a solicitor with Harper Macleod and Anne Moore, accountant. Evidence for the defender came from the defender and Paul Chalmers. Excepting Ms Jones and Ms Moore none of the main witnesses in this case emerge with any great credit.
[6] Mrs Chalmers has initiated this action against her son. She told the court that at one point the relationship between them had been very good; he was always loving and protective. As a result of this case it was now very bad. While she appeared to regret the present state of their relationship her attitude appeared to be one of cold detachment. Her case against her son is not just that he is a passive recipient of a windfall to which he is not entitled but that he was an active participant in a fraud perpetrated on her. For reasons given below, I am satisfied that the evidence does not support this allegation.
[7] Mrs Chalmers was justifiably indignant that her signature had been forged but there appeared to be no similar sentiment that a property had, according to her, been put into her name without her consent. I was not clear why she thought that she was any more entitled to the property than her son. She accepted that it was not intended as a gift to her. Mrs Chalmers was clearly unhappy with the terms of the divorce settlement; she said that was unhappy at the time she signed the minute of agreement because her husband had not given any information about the property at Hotspur Street. It seems clear that Mrs Chalmers has brought this action as a means of redressing what she sees as an imbalance in the divorce settlement.
[8] While I questioned Mrs Chalmers’ motivation in this action I considered that the evidence she gave was on the whole truthful.
[9] Chris Chalmers is 26 years old and the son of Therese and Paul Chalmers. He is a property manager at D.J. Alexander. He is by virtue of the disposition which is the subject of this action the proprietor of 38 Hotspur Street, Glasgow. He has lived there “for 2 months”. He became quite angry during his evidence when discussing his mother. I thought that this was understandable. At times his evidence lacked candour particularly when dealing with questions regarding the income from Hotspur Street during his ownership and before he commenced living there.
[10] It appeared to me that Chris Chalmers has been placed in an invidious position by the actions of his parents. He had to accept service of the divorce summons on the part of his father. That appears to have brought him into the heart of the dispute between them. He finds himself as the ostensible owner of the property but, until he moved into the property the benefit of the rental income went to his father or latterly to Rentier Property. He is the defender in an action raised by his mother which must be an unpleasant experience. I formed the view that a possible reason for some of his vague and evasive answers was a misguided attempt to protect his father from possible investigation by HMRC.
[11] Paul Chalmers is the former husband of the pursuer and father of the defender. Mr Chalmers was shown the disposition conveying the title in 38 Hotspur Street to Christopher. He accepted that he witnessed what purports to be Therese Chalmers signature. He was asked if he had forged his wife’s signature. Before answering I warned him that he was not obliged to answer the question if the answer might incriminate him in the commission of a criminal offence. In the event he did answer with the words, “I cannot recollect.” I did not consider that was a convincing answer and I did not believe him. Apart from Paul Chalmers no one presents themselves as a possible candidate to having forged Mrs Chalmers’s signature other than perhaps the defender, Chris Chalmers. I am satisfied that he did not do it. From my findings it appears that, at the very least, Paul Chalmers was engaged in tax avoidance by not declaring income from Hotspur Street. He also appears not to have disclosed that income in the course of the divorce proceedings. On the whole I did not find him a credible or reliable witness and I looked for supporting evidence when considering his version of events.
Purchase of 38 Hotspur Street
[12] The property at 38 Hotspur Street was purchased in 1998. The solicitors who acted in that purchase were Hennesy Bowie & Co, Bishopbriggs, Glasgow. They were the family solicitors. On this occasion the solicitor who dealt with the purchase was Christine Muirhead who has since died. All the correspondence is with Paul Chalmers and it is clear that he instructed the purchase and dealt with all the correspondence relating to it. There is no record of an instruction to put the property in Mrs Chalmers’ name.
[13] There was no clear explanation as to why the title was taken in the name of Mrs Chalmers. I am satisfied that this was done on the instructions of Paul Chalmers. Paul Chalmers was asked why it was put in his wife’s name. The question was objected to by Mr Tariq on the basis that there was no record. I allowed the question under reservation but I am satisfied having regard to the terms of Answers 2 and 3 that the question was appropriate.
[14] However Paul Chalmers answer was vague and unconvincing. He said that in 1995 property had been put in his wife’s name and that he had been standing as guarantor. I was not clear on the relevance of this answer.
[15] He said that 38 Hotspur Street had been bought as a Rentier Property flat for rental. Other properties had been bought in his sole name. One had been bought in his name trading as “Rentier Properties”. Another had been purchased in joint names.
[16] Hennessy Bowie corresponded with Paul Chalmers at the matrimonial home. The letters produced to the court make no mention of who should be shown on the title as the owner of the property. Mrs Chalmers is not mentioned in any of the letters. Nor does the name Rentier Property appear on the face of the correspondence. However on 23 October 1998 the solicitors wrote to Paul Chalmers and included an invoice made out to “Rentier Properties” with the address given as the matrimonial home. A cash statement shows “the intromissions of Hennessy Bowie & Company, Solicitors, Bishopbriggs on behalf of Rentier Properties in connection with purchase of flat 1/1, 38 Hotspur Street, Glasgow.” This shows a purchase price of £37, 575. The firm’s fees and outlays amounted to £440.50 making a total of £38,015.50. From that is deducted a payment to account of £16,233.69. The payment to account left the sum of £21,781.81. From that is deducted an item referred to as “Loan proceeds from Garioch Road, Glasgow” in the sum of £21,429.31 leaving a sum due of £352.50. The invoice was paid by two cheques and acknowledged in a letter addressed to Paul Chalmers on 4 December 1998.
[17] Paul Chalmers told the court that the payment to account was money from his savings. He said that this was money he was putting into the business to build it up. The “Loan proceeds from Garioch Road, Glasgow” refers to a loan from National Westminster Home Loans Limited. The title to Garioch Road is in the name of Paul Chalmers. However his position was that Garioch Road belonged to Rentier Property. It is shown in the accounts as a Rentier Property property.
[18] Mrs Chalmers said that she did not know the source of funds for Hotspur Street. She accepted that the properties which formed the Rentier Property portfolio were held sometimes in Paul Chalmers name and sometimes in joint names but in each case they were held in trust for the firm. She accepted that it was not intended that the purchase of 38 Hotspur Street was a gift to her.
Mrs Chalmers’ knowledge of 38 Hotspur Street
[19] Mrs Chalmers told the court that she did not know about the purchase of the property and that she only found out about it during the divorce. Her solicitor Janice Jones had done some research through the Land Register and discovered the property in her son’s name. This was some months before the divorce action was commenced in November 2012. This evidence was disputed by Paul Chalmers. He said that his wife was aware of the purchase in 1998. There was a lot of work done by him on the property and it would have been the subject of discussion at home. They would talk about many things to do with the business and the properties they owned particularly matters such as colour and décor. He had taken Chris to the flat when he had been working on the flat and he said that his wife would have been aware of where they had been and the reason for going there.
[20] Chris Chalmers said that he first went to 38 Hotspur Street when he was ten years old. His father was working on the premises and he went to help. He said that he was probably more of a nuisance than a help. Mrs Chalmers said that she was unaware of work being done on the property by Paul Chalmers and was not aware that Chris had been taken there by his father while he worked on the flat.
[21] On 27 November 1998 a letter was sent addressed to Mrs T M Chalmers at the matrimonial home by Robert Anderson, Property and Estate Agents, the factors on the block of flats at 38 Hotspur Street. The letter was headed “Cleaning of Common Close and Staircase, 38 Hotspur Street, Glasgow”. The letter complained that the stair was not being cleaned in accordance with the local Byelaws. It enclosed an extract copy relating to the cleaning of these areas and trusted that there would be a marked improvement when they next called. Mrs Chalmers denied seeing that letter.
[22] The factors also invoiced Mrs Chalmers for her share of ground burdens, insurance, mutual repairs etc. These invoices for the periods ending Martinmas 1998, Whitsunday 1999, Martinmas 2000 and Whitsunday 2001, were sent to Mrs Chalmers at the matrimonial home. Mrs Chalmers denied seeing any of these invoices. Paul Chalmers said his wife was aware of correspondence relating to the firm coming to the matrimonial home. She would open some of the letters. He accepted however that he would have dealt with them.
[23] The invoice dated Whitsunday 1999 was paid with a cheque signed by Paul Chalmers drawn on the account of Rentier Property. After Whitsunday 2001 the invoices were sent to Mr P Chalmers at D. J. Alexanders, a firm of estate agents and property managers in which Paul Chalmers had a business connection.
[24] Chris Chalmers told the court that he had had two discussions with his mother about Hotspur Street. These had taken place in 2010, once in Starbucks and on another occasion at the Corinthian Club in Glasgow. He said that his mother was aware of Hotspur Street and the fact that he was the owner. He had said that he was trying to sort out the divorce so he had stayed quiet. He did not think that it would help if he had got into that matter.
[25] Mrs Chalmers denied meeting Chris Chalmers in the Corinthian Club in Glasgow in 2010 and discussing Hotspur Street. She denied that in the course of the conversation she had told him that she knew he was now the owner of the property and that she had been annoyed about the disposition. She did accept that there had been a discussion with Chris in the Corinthian Club but it was after the commencement of the divorce proceedings.
[26] It became clear in cross examination of Chris Chalmers that the discussion with his mother was initiated by the service of the divorce summons on him, his father being in Dubai at the time and not having any legal representative in Scotland. The summons was served on Chris Chalmers on 24 February 2012. Despite this being pointed out to him he continued to insist that the discussion between him and his mother was in 2010.
[27] On this issue I preferred the evidence of Mrs Chalmers. There was a discussion between Mrs Chalmers and her son about Hotspur Street but it took place after the commencement of the divorce proceedings. It was prompted by Ms Jones’s search which had disclosed the existence of the disposition in favour of Chris Chalmers.
[28] Mrs Chalmers was represented in the divorce action by Janice Jones of Harper Macleod. She gave evidence that Mrs Chalmers first became aware of 38 Hotspur Street in the course of the divorce action. At that time Paul Chalmers was in Dubai and was representing himself. It fell on the pursuer to make investigations and it was in the course of the investigations that they found out about the property in Christopher’s name. She had asked the Keeper of the Registers for a copy of the disposition. Immediately it had been shown to Mrs Chalmers she had said that it was not her signature.
[29] Given that Rentier Property was in effect the family business and that Mrs Chalmers was a partner in the firm one would expect that Mrs Chalmers would have known of the purchase of 38 Hotspur Street. I accept that despite being a partner Mrs Chalmers took little to do with it and business affairs were all handled almost exclusively by Paul Chalmers. Nevertheless it might seem natural, as Paul Chalmers claimed in evidence that she would know of work being done in Hotspur Street and see invoices coming to the house. One might also expect that Mr and Mrs Chalmers might have discussions about décor and colours. However I believed Mrs Chalmers when she told the court that the first that she knew of 38 Hotspur Street was when she was advised by her solicitor of the existence of 38 Hotspur Street, that she appeared to have at one time been the owner but that it was now owned by her son. She appeared to have been genuinely astonished by this information. Her evidence found support in the evidence of her solicitor Janice Jones who said that the fact that Mrs Chalmers had title to this property was found during the course of a property search and that she had not known of it before then.
[30] On balance I have come to the view that Mrs Chalmers was unaware of the purchase of 38 Hotspur Street. I also accept that she was not aware of 38 Hotspur Street until the search conducted by Ms Jones revealed its existence. I am satisfied that she knew nothing about the title being taken in her name.
Rentier Property Accounts
[31] Ann Moore was an accountant and was the principal of Barry Moore & Co until her retiral in March this year. She knows Mrs Chalmers having met her through her husband Paul Chalmers. She also knows their son, Chris Chalmers who has his own cleaning business. Paul Chalmers had been a client since 2002 and she had prepared the accounts for the firm of Rentier Property since then. She also prepared Mrs Chalmers own personal tax return.
[32] She said that Rentier Property did not have any employees. Paul Chalmers dealt with all the business matters. It was from him that she obtained information for the accounts. She sent a letter to the firm each year requesting information and it was either posted to her by Paul Chalmers or there was a meeting with him. Although she prepared her tax return she did not deal with Mrs Chalmers in relation to Rentier Property. Ms Moore would prepare the accounts and they would be sent out to the firm at the home address. They would always be signed by Paul Chalmers.
[33] She had not heard of 38 Hotspur Street until a few months before the proof. She had been asked to put it into the accounts for 2013 but before that she had no knowledge of that property. No income had been shown for Hotspur Street. Even if no rental was obtained from a property within the portfolio the property would be shown in the accounts. She had not seen any factoring invoices for the property but said that if they were for the period before 2002 when she became the firm’s accountant then she would not have expected to see them. If she had been informed that 38 Hotspur Street was part of Rentier Property she would have shown it in the accounts. If she had been asked to put through any expenses relating to Hotspur Street then she would have questioned it.
[34] There was no direct evidence before the court as to the position before 2002. Schedules to accounts were produced commencing in the year ending 31 March 2006 to the year ending 31 March 2011. From the year ending 31 March 2007 the schedules include the details of properties pertaining to Rentier Property. 38 Hotspur Street does not appear in any of these schedules.
[35] Paul Chalmers said that 38 Hotspur Street was rented out. He could not explain why the rental income was not seen in the accounts. He told the accountant in 2013 about Hotspur Street and it was included in these accounts. So far as 2010- 2011 is concerned he said that there was no rental income in that year. He accepted that he had signed the declaration that the accounts were true and accurate. He said that he had not knowingly given false information to HMRC.
[36] It was put to him that if 38 Hotspur Street did not form part of Rentier Property then the accounts would be accurate. His reply to that question was that he did not know. He then described himself as a naive businessman. I do not accept that Paul Chalmers is naïve.
[37] Ann Moore was a good witness and I had no difficulty in accepting her evidence that she had not been informed of the existence of 38 Hotspur Street as a property belonging to Rentier Property before she was instructed to include it in the 2013 accounts. I am satisfied that there was a deliberate decision by Paul Chalmers not to include 38 Hotspur Street in the firm’s accounts.
The transfer of 38 Hotspur Street to Chris Chalmers
[38] Paul Chalmers said that in 2006 he and his wife agreed that the title should be transferred to their son, Chris. As I understood it the reason was simply to give him a property to get a start in life. He had subsequently made a similar provision for his daughter, Nicola.
[39] Chris Chalmers said that he did not know too much about the transfer of the flat into his name in 2006. There was he said discussion in the family though he was not more specific as to when such discussions took place or who was involved.
[40] Neither Paul nor Chris Chalmers were able to give any details on when or where the “discussions within the family” had taken place. I accept that at the time Chris would only have been eighteen and since he was to be the recipient the principal discussions might not have involved him. However I formed the impression that Chris was particularly uncomfortable when he gave that evidence and I was not convinced by it.
[41] Paul Chalmers said that he had instructed Christine Muirhead of Hennessy Bowie to draft the disposition in favour of Chris. On 16 March 2006 she sent a letter to Paul Chalmers at Messrs Alexanders, 49a Bath Street, Glasgow, (not, I note, the matrimonial home) marked “Strictly Private and Confidential”. It enclosed a disposition of the property in favour of Chris and an affidavit, both to be signed by Mrs Chalmers. It also included a Stamp Duty Land Tax form to be signed by Chris. The letter stated that Mrs Chalmers signature required to be witnessed but it also informed him that he could be a witness.
[42] Paul Chalmers confirmed that the signature that appears as witness to Mrs Chalmers’ signature is his. As noted above “he could not recollect” if he had forged his wife’s signature.
[43] Mrs Chalmers said that she never signed anything and that when she was shown the disposition in favour of her son it was clear that it was not her signature. The parties agreed in a joint minute that the content of a forensic science report by Stephen Cosslett B.SC was a true and accurate statement of his evidence. Mr Cosslett concluded that there was conclusive evidence that Mrs Chalmers did not sign the disposition. It was in any event a matter of concession. I heard no evidence as to what might have happened to the affidavit which was sent with the disposition for signature by Mrs Chalmers.
[44] I am satisfied from this evidence that there was no discussion with Mrs Chalmers about putting the title to 38 Hotspur Street in Chris’s name. If there had been I can see no reason why her signature would have to be forged. The evidence in my opinion points to a deliberate attempt by Paul Chalmers to keep his wife in the dark about the transfer of the property to Chris.
[45] Chris Chalmers said that he was not aware at the time of a disposition in his favour being signed. He did sign the land tax forms. He said he was given the paperwork by his father. He signed it as the purchaser of the property and handed it back to his father. He did not know what happened to it after that. He appeared to accept that he might have filled in the form though that was only to include details of the purchaser and seller.
[46] The disposition appears to have been returned to Christine Muirhead along with the SDLT form. It was not registered at that time and the SDLT forms appear not to have been lodged with HMRC. Christine Muirhead died suddenly sometime after the return of the disposition in 2006. In February 2008 Alistair Bowie of Hennessy Bowie emailed Paul Chalmers saying that a trawl through her paperwork had uncovered deeds relating to 38 Hotspur Street but this had not been completed. Subsequently Chris Chalmers made out a new SDLT form and the title was recorded in the Land Register. Chris Chalmers said that he had first seen documents which confirmed that he was the owner of Hotspur Street in 2011 but was aware of his ownership before then.
[47] In his written submission Mr Tariq submitted that Chris Chalmers had “some involvement” in the fraudulent transaction. He submitted that his evidence that he did not know what he was signing was utterly unconvincing. It was not clear to me whether or not it was being suggested that Chris had knowledge of the forgery. I doubt that he had any knowledge of the forgery. I am not satisfied that the mere signing of the SDLT forms means that he had “some involvement” in the fraud. These forms were given to him by his father and he signed them. He clearly knew that he was getting the title to 38 Hotspur Street but that does not mean that he was in some kind of collusion with his father to defraud his mother.
Divorce
[48] Mrs Chalmers told the court that the relationship between her and Paul Chalmers had started to go wrong in 2007 when her husband went to work in Dubai. According to her they separated in 2008 although that was a matter of dispute in the divorce and remained unresolved.
[49] The division of property including those properties that formed part of Rentier Property portfolio was one of the issues in the divorce action. Initially at least Paul Chalmers represented himself. The condescendence in the action of divorce set out on Mrs Chalmers behalf her understanding of the matrimonial property. It did not include 38 Hotspur Street as part of the matrimonial property. However it did make averments to the effect that the pursuer had discovered that a property at 38 Hotspur Street was formerly registered in her name. The averments continued to the effect that in 2006 the defender had made arrangements for the property to be transferred into the name of their son, Christopher Chalmers. She averred that she had no knowledge of signing a disposition to that effect.
[50] Mrs Chalmers told the court that Paul Chalmers had refused to co-operate in making full disclosure of matrimonial assets. Nothing was ever said by him throughout the divorce about Hotspur Street.
[51] On 21 March solicitors acting for Paul Chalmers sent Janice Jones a list of matrimonial property. It did not include Hotspur Street. Mrs Chalmers confirmed that she saw the email.
[52] As Part of the divorce settlement a Minute of Agreement was entered into by Mrs Chalmers and Paul Chalmers. It was registered in the Books of Council and Session on 15 November 2012. Amongst other things it provided for Mrs Chalmers resignation from the partnership and an election for the continuation of the partnership business. Save as otherwise provided for Mrs Chalmers rights and interests in the partnership assets, capital accounts and partnership income were transferred to Paul Chalmers. Both parties renounced any right they may have against each other.
[53] Mrs Chalmers acknowledged that if the disposition had been reduced before the divorce settlement it would have formed part of the matrimonial property and fall to have been dealt with as part of the settlement. She also acknowledged that she had signed the Minute of Agreement in the knowledge that her signature on the disposition had been forged.
[54] Janice Jones told the court that there was little in the way of discussions between the parties regarding Hotspur Street. It was never suggested by Paul Chalmers that it was held in trust for Rentier Property. Mrs Chalmers regarded it as a matter between herself and Chris as it was in his name. Ms Jones advice to Mrs Chalmers had been that it remained separate.
[55] Janice Jones acknowledged that at the time of entering into the minute of agreement she and Mrs Chalmers were fully aware that the disposition in favour of Chris Chalmers had been signed in 2006 and registered in 2008 and was aware that Mrs Chalmers denied signing the disposition. She said that the reason why an action of reduction of the disposition was not commenced before then was that Mrs Chalmers was already engaged in one Court of Session action and it was thought better to wait until it had been concluded before raising another action. She acknowledged that if an action of reduction had been successful before the conclusion of the divorce action the property would have been part of the matrimonial property. When challenged again as to why the pursuer had waited until after the divorce she said that at that point they did not have a report from a handwriting expert. However she then conceded that the summons in this action had been signetted and served before they had an expert report.
[56] I did not find either Mrs Chalmers’ or Ms Jones’s evidence on this point satisfactory. It is clear that there was a deliberate decision not to commence these proceedings until after the divorce had been finalised. I formed the view that the reason for the decision to delay commencing proceedings was that if the disposition was reduced before the minute of agreement was signed and the divorce finalised the property at 38 Hotspur Street would then be in Mrs Chalmers name. Whether she was holding the title in her own name or in trust for Rentier Property would not at that stage have mattered. It would have been available as part of either the matrimonial property or the partnership property and the beneficial interest in it would have had to be shared with Paul Chalmers. By raising the action after the divorce Mrs Chalmers hopes to recover the property for herself. She can then hope to rely on the renunciation of rights in the minute of agreement to ward off any challenge from Paul Chalmers.
Chris Chalmers and 38 Hotspur Street
[57] Chris Chalmers said that since he had become the owner the flat was rented out. He had not received any income. He thought it was going with all the other properties i.e.Rentier Property. He occasionally saw documentation relating to Hotspur Street; invoices relating to the period 2011 to 2013 were addressed to him at his work at D. J. Alexander. He did not pay these accounts.
[58] Chris Chalmers did not know if there was rental income from the property in 2006 or 2007. He did know that there was rent in 2008. He did not know if Rentier Property was deriving rental from it. He did not collect the rent. He did not know if his father collected rent. He made no inquiries as to where the rent was going. He had not received anything for the property. He was not aware if any tax had been paid in respect of income from the property; he had not paid any tax on it. He later accepted that the rent on the property was paid to an account at D.J. Alexander. He said that he did not know who owned the account.
[59] I am satisfied that Chris Chalmers was not being truthful when he told the court that he did not know where rental income was being paid.
[60] Paul Chalmers accepted that until very recently he had been in receipt of the rental from the property. His explanation for this was that in 2011 he had a substantial bank overdraft of £300,000 and had breached a covenant. He needed the income from the property to keep afloat.
Submissions for Pursuer
[61] Mr Tariq, for the pursuer, submitted that it was accepted that the signature on the disposition was a forgery. Accordingly it was a nullity. No rights in land could pass on the basis of such a document. If the court did not reduce the disposition it would be endorsing a fraud and set a dangerous precedent. It was accordingly surprising that the court was being asked not to reduce the disposition on some equitable basis. The defender was not a partner in Rentier Property. Moreover he had some involvement in the fraudulent transaction; his evidence that he did not know what he was signing when he signed the Stamp Duty forms was, Mr Tariq submitted, utterly unconvincing. The defender was sitting on a windfall to which he was not entitled. Mr Tariq had put to the defender in cross examination that the defences were in fact about his father and prejudice to him and not to the defender. Mr Tariq submitted that in his answers the defender appeared to accept that these defences were irrelevant. The evidence did not support the conclusion that the property was held in trust for Rentier Property. Even if the title was held in trust it was irrelevant since Rentier Property was not a party to the action. So far as prejudice to Paul Chalmers was concerned again he was not a party to the action. In any event he had chosen not to deal with Hotspur Street in the minute of agreement. It would be inconceivable not to reduce the disposition on the basis of prejudice to Paul Chalmers.
[62] Mr Tariq also submitted that there was no record for some of the primary facts, including the purchase of 38 Hotspur Street with monies from the partnership. He had taken timeous objection to the leading of evidence but it had been allowed under reservation. The purser had been prejudiced in the presentation of the case. The conclusion had been pled; that the property was held in trust for Rentier Property but not the facts that supported that conclusion.
[63] Mr Tariq submitted that in any event the evidence did not support the conclusion that 38 Hotspur Street had been bought as part of the Rentier Property portfolio. He pointed to the lack of evidence to support such a conclusion and in particular to the lack of any mention of 38 Hotspur Street in the accounts.
[64] In answer to the submissions by Mr Logan Mr Tariq submitted that the evidence did not support the conclusion that the beneficial owner of 38 Hotspur Street was Rentier Property. He submitted that the beneficial owner was in fact, Paul Chalmers.
Submission for Defender
[65] Mr Logan for the defender submitted that the pursuer had no title or interest. The evidence showed that property had been purchased with money from Rentier Property. Accordingly the presumption was that it belonged to Rentier Property; Partnership Act 1890, section 21. The fact that the title was in the name of one of the partners did not negate a finding that the beneficial ownership was with the partnership; Longmuir v Moffat 2009 SC 329, paragraphs 15 and 16. If it was, as he submitted, purchased by Rentier Property then it followed that the pursuer’s only interest in the property was as a partner in the firm. However the pursuer had renounced any interest in the firm in the minute of agreement.
[66] The second issue was whether or not it was appropriate for the court to exercise its discretion and grant reduction of the title. This was a matter for the discretion of the court. He referred me to the decision of Lord Bracadale in William Dodd v Southern Pacific Personal Loans and others [2006] CSOH 93 and in particular at paragraphs 97 and 98. He did not contend that this was a case where the pursuer condoned the granting of a fraudulent disposition. She had however made an informed decision when she signed the minute of agreement and having done so she was personally barred from seeking reduction. In signing the minute of agreement she not only renounced her claim against the assets of Rentier Property but she also sought to gain an unfair advantage by reaching a settlement and then by taking steps to recover an asset which she and her lawyer accepted would otherwise have been part of the matrimonial property and dealt with in the settlement. He also referred me to Robertson’s Executrix v Robertson 1995 SC 23, a case dealing with decree in absence where Lord McCluskey, giving the decision of the Extra Division quoted with approval the Lord Justice Clerk in Hyslop v Flaherty 1993 SC 588 at 590 where he said, “There is no general rule in such a matter as this; each case must turn upon in its own circumstances.” Mr Logan submitted that the same principle applied in this case.
[67] Mr Logan set out the points that he relied upon in support of this submission:
[68] The defender had obtained the property in good faith. He had spent money on it. He now lives in the house and it is his home. Whatever games the pursuer and her former husband had been playing in the divorce he would lose the property if decree was granted. I should exercise my discretion by refusing to grant decree.
Conclusions
[69] It is very difficult to tease out conclusions from this cobweb of conflicting evidence. It is made all the more difficult by the fact that none of the parties, including Paul Chalmers come to this with clean hands.
[70] Given the concession that the signature on the disposition was forged the pursuer is entitled to decree unless one of the defences advanced by the defender is met. I consider that the onus must be on the defender to make out the defence. There are two substantial defences encapsulated in the first two pleas in law. They are, first, that any interest that the pursuer had in the subjects was as a partner in the firm of Rentier Property. She had renounced any interest in the firm and thus has no title or interest to pursue the action. It should be dismissed. Secondly, having entered into the minute of agreement with Paul Chalmers the pursuer is personally barred from pursuing the action.
Is there a lack of record for the defender’s case?
[71] The defender in his pleadings avers that “It is believed and averred that the said subjects were in fact purchased by her former husband Paul Chalmers. His reason for putting the title in the name of the pursuer is not known.” and then later, “She was aware, or ought to have been aware that she had in fact never been the owner of the subjects but had held it in trust for the partnership of Rentier Property.” The defender’s first plea in law is to the effect that any interest the pursuer had in the property was as a partner in Rentier Property and having renounced any interest in the firm she had no title or interest. The defender’s averments are answered by the pursuer over more than 2 pages. These deal with whether the property showed in the accounts and the dealings between the parties in the divorce action relating to 38 Hotspur Street. It is true that there are no specific averments about the source of the funds to purchase 38 Hotspur Street. However I do not consider it necessary to plead the evidence supporting conclusions which are themselves sufficiently averred. In this case it was clear from the pleadings and the plea in law that the issues of purchase and ownership of 38 Hotspur Street were central to the issues to be determined. Accordingly I conclude that the evidence of the source of funds for the purchase of 38 Hotspur Street is before me for consideration.
Was 38 Hotspur Street an asset of the firm of Rentier Property?
[72] Section 21of the Partnership Act 1890 is in the following terms:
“21. Property bought with partnership money
Unless the contrary intention appears, property bought with money belonging to the firm is deemed to have been bought on account of the firm.”
This is an evidential provision. It establishes a presumption that property bought with money belonging to the firm is effectively an asset of the firm. The headnote reinforces the point that it is to the source of the money that one has regard in determining whether or not the presumption should apply. It is of course a rebuttable presumption. Equally if the section does not apply it does not mean that, on the evidence the property is not a partnership asset. It will depend on the facts and what the evidence discloses.
[73] Suppose a man and wife own a taxi business. They purchase a new car. If the purchase is made on the business account then the presumption in section 21 will apply and unless the contrary intention appears it will be deemed to have been purchased for the taxi business. But suppose the husband purchases the car on his own account. In that case the presumption does not apply; it could be for his own personal use and have nothing to do with the taxi business. On the other hand it may be that the evidence shows that the car is in fact used for the taxi business. In that case the car will be deemed to be a partnership asset. The husband would have introduced the capital into the business.
[74] The funds for the purchase of Hotspur Street came from two sources. The first was a loan secured over 167 Garioch Road from National Westminster Home Loans Limited. The title to Garioch Road is in the name of Paul Chalmers but it was not disputed that this was part of the Rentier Property portfolio of property and an asset of the firm. Mr Tariq did not suggest that money borrowed against a partnership asset would not constitute “money belonging to the firm” for the purposes of section 21 of the Partnership Act. Accordingly I accept that section 21 applies to these funds.
[75] The second source of funds is Paul Chalmers himself. He said the money came from his savings and it was money he was bringing into the business. I can readily accept, since it was not challenged, that he was the source of the balance of the funds to purchase Hotspur Street. However it was not suggested that the funds went through the partnership accounts. The question is whether I can accept Paul Chalmers’ evidence that this was money that he was introducing into the business. Given my assessment of Paul Chalmers reliability and credibility I could only accept his evidence if I considered that there was evidence that was sufficiently convincing to support it.
[76] It is in fact artificial to look at the two sources of funds in isolation from each other. The real issue is whether or not, bearing in mind the presumption that applies to part of the funds, 38 Hotspur Street was a Rentier Property partnership asset.
[77] The evidence that supports Paul Chalmers’ evidence is as follows:
[78] There is however no evidence that 38 Hotspur Street was ever operated as part of the Rentier Property portfolio. The most obvious source of evidence would be the firm’s accounts. No accounts have been produced for the years preceding 2006-07. The accounts which have been produced do not show Hotspur Street as being one of the assets of the firm. Indeed it is not until 2013 that the rental income is shown in the accounts. Ms Moore said that she had not heard of Hotspur Street until very recently. She had been the accountant for the firm since 2002. I accept her evidence that from at least 2002 the property at Hotspur Street did not form part of the Rentier Property portfolio. There is no evidence of any accounting to HMRC or otherwise in respect of income from Hotspur Street as part of Rentier Property. There is some evidence that some bills in respect of Hotspur Street were paid from Rentier Property accounts but these are minor and few in number. Paul Chalmers was unable to explain why the rental income was not shown in the accounts.
[79] Mr Logan submitted that after 2006 the property would not properly be shown in the accounts since by that stage it was owned by Chris Chalmers. That however does not square with the evidence that Chris Chalmers never received any income from the property and that in 2013 it was shown in the accounts for Rentier Property. It is clear that the rental income was being paid to Paul Chalmers. That was the case since at least 2002.
[80] I consider the failure to show Hotspur Street in the accounts to be significant. Despite the presumption that must apply to the loan funds secured over Garioch Road I am not satisfied that 38 Hotspur Street ever formed part of the Rentier Property portfolio. The lack of accounts are a starting point for that conclusion. I accept that there is a lack of direct evidence about the position between 1998 and 2002 when Anne Moore became the accountant. But there are other pieces of evidence that support this conclusion. Paul Chalmers did not inform his wife and business partner that he was purchasing the property. He put the title to 38 Hotspur Street in Mrs Chalmers’ name without her knowledge or consent. He did not tell her or make her aware of 38 Hotspur Street. The forgery would not have been necessary if Mrs Chalmers knew of it. The flat was rented out between 2002 and 2006 when the disposition in favour of Chris Chalmers is supposed to have been signed. Rent from the property was not going to Rentier Property. The inference must be that the rental income was going to Paul Chalmers himself. After 2006 the rent continued to be paid to Paul Chalmers despite the fact that Chris Chalmers now owned it.
If 38 Hotspur Street was not a Rentier Property asset whose was it?
[81] The evidence points to a conclusion that Paul Chalmers decided to purchase 38 Hotspur Street as a property which would not be part of the assets of the firm of Rentier Property and to distance the firm and himself from ownership of it. He used his wife’s name in order to achieve that end. It is perhaps speculative to determine why that was done but the failure to account for the rental income in the accounts to HMRC may suggest an answer.
[82] The rental income from Hotspur Street went to Paul Chalmers before and after the granting of the disposition in favour of Chris Chalmers in 2006. That raises the issue as to whether or not the granting of the disposition was in fact in implement of an intention to convey the property to Chris Chalmers or part of a wider deception in which, as Mr Tariq submitted, Paul Chalmers remained the beneficial owner.
[83] In passing I should note that I was surprised at this submission. In the first place it seemed to me to run counter to the pursuer’s case at least as I first understood it. More importantly however Paul Chalmers was not convened as a defender which arguably he ought to have been if the pursuer’s case was that he was the beneficial owner.
Why was there a disposition to Chris Chalmers in 2006?
[84] There is no doubt that Chris Chalmers colluded in the rental income continuing to go to his father after he became the ostensible owner of the property. I am satisfied that neither of them told the court the full truth about this matter. It may be that part of the reason for the disposition in favour of his son was part of an effort to conceal the source of rental income. On the other hand I am not clear that there was never an intention that Chris Chalmers would not own the capital in the property. He is the owner, subject to these proceedings, of 38 Hotspur Street. It would be difficult for Paul Chalmers to assert a right in the property in the face of what is on the register. He would know that when the disposition was granted in 2006. I note too that he has recently purchased a property for Nicola. It is not unusual for parents to wish to make provision for their children sometimes by purchasing property for them. I accept that is apparently not the wish of the pursuer in this case.
Decision and reasons
[85] I have found as a fact that 38 Hotspur Street did not form part of the Rentier Property portfolio. It follows that Mrs Chalmers could not have held it in trust for the firm. Accordingly I will repel the defender’s first plea in law.
[86] I now turn to the defender’s alternative submission. I am prepared to accept that as a general proposition the decision on whether or not to grant a decree of reduction is a matter of discretion and will depend on the facts in each case. That does not mean however that the decision is one at large and wholly dependent on what might be seen as the equities in the case. In William Dodd v Southern Pacific Personal Loans and others the pursuer condoned the forgery and was shown to have benefitted from the proceeds. Mr Tariq submitted that if I refused to grant reduction the court would in effect be endorsing a fraud. Although he did not cite the case some support for that approach comes in the speech of Lord Hatherley in Lockyer v Ferryman (1877) 4R 32 at 39 where he said, “It is well established…. that nothing can protect the perpetration of a fraud.”
[87] However I am not persuaded that the matter is quite as simple. If it were the case that, with the pursuer’s knowledge and agreement, 38 Hotspur Street had been purchased and the title put in the pursuer’s name either to be held in trust for the firm or in her own right and, subsequently, her signature had been forged on the disposition in favour of her son then it is difficult to conceive of a defence to an action of reduction.
[88] That of course is not what happened. The pursuer did not know of the acquisition of the property. She did not know that it had been put in her name. She accepted it was not intended as a gift to her. Putting to one side her interest in matrimonial property she had no interest in the property before her signature was forged and the disposition granted in favour of the defender. The fraud that was perpetrated here was a wider one than simply the forging of a signature. The pursuer was used by Paul Chalmers as a means of concealing his interest in the property.
[89] The closest analogy that I can think of is of someone fraudulently using someone else’s bank account to conceal money transfers. If money was transferred into the account without the account holder knowing about it and was then transferred out again by that person forging the account holder’s signature the account holder would not ordinarily be entitled to the monies that had been in his account at the instance of the fraudster.
[90] If decree of reduction were to be granted then the pursuer would not be restored to the position she was in before her signature was forged. Since then she and her husband have divorced. Reduction of the disposition would restore the pursuer’s real right in the property. However had she had the real right at the time of the divorce it would have formed part of the matrimonial property and fall to have been dealt with at that time. Both the pursuer and her solicitor, Ms Jones, accepted that is what would have occurred. There was however a deliberate decision by the pursuer, advised by Ms Jones, to delay raising this action until after the divorce. I am satisfied that the reason for doing this was so that the pursuer could gain an advantage over her husband and not have to put 38 Hotspur Street into the pot of matrimonial property.
[91] When the pursuer signed the minute of agreement she was aware of the position with regard to Hotspur Street and the action that was open to her. She decided however in the face of such knowledge to sign the minute of agreement and in so doing settle the division of matrimonial property between her and her husband.
[92] The defender on the other hand is not blameless. I have found that he colluded with his father at least in so far as the payment of rental income after 2006. On the other hand I am not satisfied that he participated in any fraud on his mother. I am satisfied that there was an intention on the part of Paul Chalmers that the property should ultimately go to his son, Chris. The defender is now in occupation of the property and it is his home.
[93] In all the circumstances, particularly having regard to the fact that it was never intended that the pursuer should have any beneficial interest in the property, that she delayed raising this action beyond the signing of the minute of agreement and that the defender did not participate in any fraud on the pursuer I have decided that I should sustain the defender’s second plea in law and refuse to grant decree of reduction. I shall repel the defender’s third and fourth pleas in law and repel the pursuer’s pleas in law. I shall reserve the question of expenses.
