Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2016] CSOH 164

 

A484/14

OPINION OF LORD TYRE

In the cause

ACCOUNTANT IN BANKRUPTCY as Trustee on the sequestrated estates of TARIQ MAHMOOD

Pursuer

against

ADEEL MAHMOOD

Defender

Pursuer:  Ower;  Harper Macleod LLP

Defender:  Skinner;  Balfour & Manson LLP

29 November 2016

Introduction
[1]        The pursuer was appointed as trustee on the sequestrated estates of Tariq Mahmood (“the debtor”) on 11 May 2010.  The date of sequestration in terms of section 12 of the Bankruptcy (Scotland) Act 1985 was 8 January 2010.  By a disposition dated 17 September 2009 and registered in the Land Register of Scotland on 27 January 2010, the debtor conveyed to his son, the defender, his interest as proprietor of commercial subjects at Balmore Road, Glasgow.  The disposition registered in the Land Register bore to have been granted by the debtor “for love, favour and affection”. 

[2]        In this action the pursuer seeks decree of reduction of the disposition, on the ground that it was a gratuitous alienation by the debtor in favour of an associate effected less than five years before the date of sequestration and therefore challengeable under section 34(1)(b) of the 1985 Act.  The defender contends, in terms of section 34(4)(b), that the disposition was made for adequate consideration, and that the words “for love, favour and affection” in its narrative clause were inaccurate and contrary to the debtor’s instructions to the solicitor who prepared and registered the deed.  The case came before me for proof before answer.  It was common ground that the onus of establishing that the alienation was made for adequate consideration rested upon the defender. 

 

Evidence on behalf of the defender
[3]        The defender and the debtor gave evidence which on matters within their common knowledge was largely mutually consistent, and which was to the following effect.  The subjects with which these proceedings are concerned comprise the ground floor of a two‑storey building and consist of a post office and convenience store.  The debtor, his wife, and his three adult children, including the defender, have at all material times lived together on the first floor of the building.  The shop and post office premises were acquired by the debtor from his brother, Arshud Mahmood, by a disposition registered in the Land Register on 24 May 2007, according to which the consideration was £50,000 and the date of entry 21 February 2007.  The debtor explained that the consideration consisted of repayment by him of his brother’s bank loan.  After the transfer of ownership to the debtor, the subjects were leased to Arshud Mahmood, who operated a grocery business.  The defender was the accredited sub-postmaster and had been operating the post office since 2005 under a sub‑lease by his uncle.  He was paid a monthly salary by the Post Office, consisting partly of a core payment and partly of amounts which depended upon the value of business done in the post office.  Monthly totals were therefore variable:  during 2007 the defender’s net monthly salary after deduction of tax and national insurance fluctuated between about £2,650 and £3,050.  The defender had also had other employment as a manager with Tesco, but in 2007 was on unpaid leave to finish a degree in business economics and business management at Glasgow University.  He had taken out a student loan. 

[4]        According to the evidence of the debtor and the defender, the debtor’s physical condition during the first half of 2007 was not good and he did not feel able to play any future role in the running of the business.  He wished to pass on his interest to the defender, who was then aged 22.  An oral agreement was reached between the debtor and the defender in about April 2007 that until his 25^th birthday on 9 September 2009, the defender would transfer his monthly salary to the debtor’s account.  He would then become entitled to have the subjects transferred to him in consideration of the payments that he had made.  The defender had considered this to be a reasonable deal.  He had understood that it would result in him paying significantly more than £50,000 for the subjects, but if he had purchased them with the assistance of a mortgage the effect of paying interest would have been that the loan would have cost £1.65 for every £1 borrowed;  in any event he did not believe that he would have been able to obtain a mortgage.  He was living at home with low overheads and had the benefit of his student loan.  He had planned to return to work with Tesco after obtaining his degree, although in the event he went to work for Asda instead.  The debtor had also regarded the agreement as reasonable;  he had considered that by age 25 his son would be thinking of settling down and that it would be appropriate for him to become the owner of the subjects at that time. 

[5]        From April 2007 until September 2009 (inclusive), the net salary received by the defender each month from the Post Office was paid directly into a current account in the name of “Lambhill Post Office and Store – Mr T Mahmood SO Trading”.  A payment on 30 September 2009 was, according to the debtor, the last payment made.  The total of the sums paid into the account during the foregoing period, according to my calculation, was £90,594.02. 

[6]        On 1 September 2009, the debtor telephoned his solicitor, Mr Michael Ramsay, to instruct him to prepare documentation for the transfer of the subjects to the defender.  Mr Ramsay was an associate with the firm of Dykes, Glass & Co, whose principal, Mr Jeffrey Dykes, worked in the firm’s main office in Bath Street, Glasgow.  Mr Ramsay worked in a branch office in Maryhill Road.  His secretary there was Ms Janice Watt.  On receipt of the debtor’s call, Mr Ramsay made notes on a memorandum entitled “Money Laundering and POCA – Sources of Funds”.  He noted the client name as “Tariq & Adeel Mahmood” and the nature of the transaction as “Transfer of title.  No consideration”.  Mr Ramsay gave evidence at the proof although his memory of the transaction was vague.  He did recall being told that money had been changing hands between the debtor and the defender via a bank account, and that they now wanted the appropriate conveyancing documentation prepared.  Mr Ramsay proceeded to produce a disposition for signature by the debtor.

[7]        It is necessary to note at this stage that the productions lodged for the proof included two different dispositions of the subjects by the debtor in favour of the defender.  Both bore to have been signed on 17 September 2009.  The first disposition, a copy of which was lodged on behalf of the defender, narrated that the subjects were being disponed “for certain good and onerous causes”.  It was signed by the debtor and witnessed by Mr Ramsay.  The date (17 September 2009) and place (Glasgow) of signing, and the full name and address of the witness, appear to have been completed by Ms Watt.  The conveyancing file of Messrs Dykes, Glass & Co, also lodged, contains what appears to be the original of this document, but with two diagonal red lines scored through it which are absent from the copy produced by the defender.  The second disposition, a copy of which was lodged on behalf of the pursuer, and the original of which is also on the conveyancing file, narrated that the subjects were being disponed “for love, favour and affection”.  It was signed by the debtor and witnessed by Ms Watt.  The date of signing (17 September 2009) and the full name and address of the witness appear to have been completed by Ms Watt.  The place of signing (Glasgow) is in Mr Ramsay’s handwriting.  Both dispositions have backings bearing the date “2009”.  It is not suggested by anyone that the debtor’s and witnesses’ signatures on these two documents are other than genuine.  However, the defender, the debtor and Mr Ramsay were all clear in their recollection that the debtor did not sign two dispositions on 17 September 2009. 

[8]        The debtor and the defender attended Mr Ramsay’s office on 17 September 2009 to sign a disposition and any other documents required.  According to their evidence, and that of Mr Ramsay, the disposition signed that day was the one bearing the narrative “for certain good and onerous causes”.  The defender recalled asking Mr Ramsay what these words meant.  Mr Ramsay explained that they had been inserted to recognise that payments had already been made to purchase the subjects.  Mr Ramsay signed the deed as a witness;  Ms Watt was not in the room when the deed was signed.  The debtor asked for and was given a copy of the executed deed for his records: this was the copy lodged.  Mr Ramsay prepared a stamp duty land tax form entitled “Certification that no Land Transaction Return is required for a land transaction” (SDLT 60) for signature by the defender.  The defender signed the form.  Under a heading “Reason no Land Transaction Return is required”, there is a tick in a box (probably by Mr Ramsay) opposite the words “Transfer or conveyance of a freehold interest in land for no chargeable consideration”.  Mr Ramsay advised the debtor and the defender that matters would be completed by the end of the week. 

[9]        No disposition was recorded promptly after the meeting on 17 September 2009.  I note, however, that an inhibition was served on the debtor on 22 September 2009 and registered in the Register of Inhibitions and Adjudications on 25 September 2009.  On 26 November 2009, the debtor swore an affidavit before Mr Ramsay that the subjects transferred were not a matrimonial home in relation to which a spouse of his had occupancy rights.  Mr Ramsay could not recall the circumstances in which this affidavit had been signed.  The debtor could not remember when it was signed but was sure it had not been signed on 17 September.

[10]      The debtor’s evidence in relation to the signing of the second disposition, ie the one bearing the narrative “for love, favour and affection” was as follows.  In early January 2010 he received a phone call from Ms Watt asking him to come to the office to sign a document relating to the transfer of the subjects.  He called in on his way to another appointment.  Ms Watt passed a document to him under the glass screen at the reception counter and asked him to sign it.  Only the bottom of the document was passed through;  Ms Watt did not explain what it was or invite him to read it.  He signed it without reading it as he was in a hurry.  Ms Watt said that she would fill in the details and as he left he saw her beginning to do so.  Mr Ramsay was not present.  The debtor now believed that the deed he signed in early January was the disposition containing the “love, favour and affection” narrative.  At no time had he given instructions to Mr Ramsay to prepare a second disposition.  Nor did he ever tell Mr Ramsay that he had transferred the subjects to the defender for no consideration.

[11]      Mr Ramsay was unable to provide an explanation of how it had come about that a second disposition was drafted and signed.  He acknowledged that the transaction had not been handled expeditiously.  He could not recall why the disposition “for certain good and onerous causes” had been scored through;  perhaps some problem had come to light after the transaction had been completed.  It might be that the file had fallen asleep and then, when it was reactivated, he had felt it necessary to prepare another disposition but had inserted an incorrect narrative.  He could not remember when or why the second disposition was signed but was certain that it had not been signed on the date which it bore, ie 17 September 2009.  He could not explain how an incorrect date had come to be inserted:  it might have been an error on the part of Ms Watt.  He thought that the use of the narrative “for love, favour and affection” had been an error for which he was responsible. 

[12]      The Dykes, Glass & Co conveyancing file contains a file attendance note by Ms Watt dated 7 January 2010 recording the following;  “Telephoning Inland Revenue you do not need SDLT 1 for a Transfer of Title with no consideration as long as there is no debt.” 

[13]      The Land Certificate for the subjects discloses that the disposition in favour of the defender was registered on 27 January 2010.  The date of entry is given as 17 September 2009;  the consideration is stated to be “Love, Favour and Affection”.  Indemnity was excluded in respect of any loss arising from reduction of the disposition following on the sequestration of the debtor’s estate.  Indemnity was not excluded in respect of the inhibition registered against the debtor on 25 September 2009 after Mr Ramsay provided a letter confirming that the disposition had been delivered on 17 September 2009.

 

Evidence on behalf of the pursuer
[14]      Evidence was led on behalf of the pursuer from Ms Watt, Mr Dykes, and Ms Laura Reid, a team leader at Messrs Wylie & Bisset, chartered accountants engaged as agents by the pursuer to conduct the debtor’s sequestration.  Ms Reid had taken over this case when she joined Wylie & Bisset in about 2012.  So far as she was aware, the debtor had not, prior to the raising of the present action, mentioned any agreement with the defender regarding transfer of the subjects in consideration of 2½ years’ salary payments.  Nor had she been aware prior to commencement of these proceedings of any contention by the debtor or the defender that the “love, favour and affection” narrative in the registered disposition was incorrect.  When this evidence was put to the debtor, he responded that there had been contact, prior to Ms Reid’s involvement, between a solicitor (not Mr Ramsay) engaged by him and persons acting on behalf of the trustee, in the course of which the trustee had been informed that the subjects had been sold to the defender. 

[15]      Ms Watt’s evidence was that she had witnessed the disposition containing the narrative “for love, favour and affection” on the date which it bore, ie 17 September 2009.  She would not have entered an incorrect date in a disposition.  She had no recollection of telephoning the debtor in January 2010 to ask him to come in to sign a deed, nor of presenting him with a deed to sign in Mr Ramsay’s absence.  If a disposition had been signed in January 2010 she would not have inserted the date 17 September 2009.  She had no specific recollection of this transaction.  The terms of her query regarding stamp duty land tax would have come from Mr Ramsay.  The disposition containing the narrative “for certain good and onerous causes” was not put to her for comment. 

[16]      Mr Dykes explained that, in accordance with office practice, the executed disposition was sent to him at the firm’s head office along with a completed Form 2 (Application for registration of a dealing) which required to be signed by him as sole principal.  The form as sent by Mr Ramsay to Mr Dykes contained no figure for monetary consideration, but did contain the words “certain good & onerous causes” in the box entitled “Non-monetary Consideration” and a value of £50,000.  On the form as submitted to the Registers of Scotland, the words “certain good & onerous causes” had been struck out and replaced by the words “for love favour & affection” in Mr Dykes’ writing.  Mr Dykes had no recollection of this particular transaction but thought that he must have made the correction because he had noticed that the words in the form did not match the narrative in the disposition, which discrepancy would have caused the latter to be rejected for registration.  He signed the form on 8 January 2010.  When submitted, the disposition was accompanied by the matrimonial home affidavit mentioned above.

 

Argument for the pursuer
[17]      On behalf of the pursuer it was contended that the starting point was the narrative clause of the disposition which the pursuer sought to reduce.  From a plain reading of the disposition, no consideration was paid for the alienation challenged.  A defence of adequate consideration in these circumstances faced severe difficulties in relation to credibility (cf Nottay’s Tr v Nottay 2001 SLT 769, Lord Ordinary (Clarke) at para 11).  The defender had to satisfy the court (i) that an agreement had been entered into between himself and the debtor prior to the date of transfer to the effect that the subjects would be sold to the defender;  (ii) that consideration was given in terms of that agreement at least equivalent to the value of the subjects;  and (iii) that the disposition registered in the Land Register was erroneous.  There was no credible evidence to establish any of these matters.  The following issues were relevant to the assessment of the credibility and reliability of the evidence led on behalf of the defender: 

(i)         neither the existence of a prior agreement in terms of which payment was made nor the alleged error in the disposition was raised with the trustee prior to the commencement of this action;

(ii)        there was no documentation vouching the existence of the alleged agreement;

(iii)       in contrast, there was ample documentation consistent with a transfer for no consideration, including (a) the terms of the registered disposition itself;  (b) Mr Ramsay’s entry in the money laundering and POCA memorandum;  (c) the box ticked on the SDLT form;  (d) Ms Watt’s file note of her call to HMRC;  and (e) the handwritten amendment by Mr Dykes on the application for registration; 

(iv)      there was no documentation vouching either the purpose of the payments into the debtor’s bank account or the use to which those funds were put; 

(v)       the alleged transaction made no commercial sense, having regard to the disparity between the value of the subjects and the total amount of the sums paid into the debtor’s bank account;  and

(vi)      any evidence that the terms of the registered disposition were incorrect was unclear, contradictory and unpersuasive, when regard was had in particular to Ms Watt’s clear evidence that it was signed and witnessed on the date which it bore. 

For all of these reasons, the evidence of the defender and the debtor regarding the alleged agreement between them should be rejected as neither credible nor reliable.  The defender had failed to discharge the onus of establishing that the alienation in his favour had been made for adequate consideration. 

 

Argument for the defender
[18]      On behalf of the defender it was submitted that the evidence of the defender and the debtor regarding a prior agreement for the purchase of the subjects by the defender should be accepted as credible and reliable.  The bargain may have been unusual, but within family circumstances it was not incredible.  The payments made under the agreement constituted more than adequate consideration for the transfer of the subjects.  No other plausible explanation for the payments had been offered by the pursuer.  The evidence of the defender, the debtor and Mr Ramsay that the disposition executed on 17 September 2009 was the one containing the narrative “for certain good and onerous causes” should be accepted.  It was supported by the debtor’s possession of a copy of the disposition without lines scored across it.  Mr Ramsay’s evidence that he was told on 17 September 2009, well ahead of any bankruptcy proceedings, of the agreement regarding instalment payments that had been made was crucial in corroborating the testimony of the defender and the debtor.  It would have been remarkably prescient of the defender and debtor to have invented a story in order to prepare the way for a defence to a challenge to the alienation following any future sequestration.  The matter would be straightforward were it not for the fact that the disposition ultimately registered contained the “love, favour and affection” narrative.  This had been due to error on the part of Mr Ramsay.  How it came about that a second disposition was prepared at all was unclear but beside the point.  It had not been done on the instructions of the debtor or the defender but on Mr Ramsay’s own initiative.  The debtor’s account of being asked to sign a second disposition received support from the date of Ms Watts’ file note (7 January 2010) and the fact that the application for registration form had been signed by Mr Dykes on 8 January 2010.  Ms Watt’s evidence that she signed the “love, favour and affection” disposition on 17 January 2009 should be rejected as unreliable.  Decree of absolvitor should be pronounced.

 

Decision
[19]      I accept the evidence of Ms Reid and Mr Dykes as credible and reliable.  As regards the other witnesses, I accept their evidence as credible and reliable to the extent explained in the remainder of this opinion.

[20]      In MacFadyen’s Tr v MacFadyen 1994 SC 416, Lord McCluskey, delivering the opinion of the court, observed (page 421): 

“The word ‘consideration’ is not defined in the Act and we consider that it must be given its ordinary meaning as something which is given, or surrendered, in return for something else. If something is given without any return being demanded or expected or obtained and at the time of giving is not intended to be regarded as a consideration of some past, present or future return… that which is given cannot later be converted into a consideration just because at the later date the giver and receiver chose so to describe it. A consideration appears to us to acquire its character as a consideration not later than the time when the giving or surrendering takes place.”

 

The words “in return for” make clear that there must be reciprocity between the challenged alienation and what is said to have been given in consideration of it.  In the present case, it does not seem to me that any real issue of adequacy of consideration arises.  There appears to be no doubt that at the time when the alleged agreement between the debtor and defender was entered into, the total sum of the defender’s next 2½ years’ post office salary payments would substantially exceed the value of the subjects.  The critical question is not, therefore, whether the consideration for the alienation of the subjects was adequate, but rather whether there was reciprocity between the payments of salary into the debtor’s bank account on the one hand and the subsequent transfer of the subjects to the defender on the other.  If that question is answered in the affirmative, then the defence under section 34(4)(b) of the 1985 Act succeeds.  That in turn depends upon acceptance of the evidence of the defender and the debtor that an agreement to that effect was entered into in the early part of 2007. 

[21]      Counsel for the pursuer understandably placed emphasis on the “love, favour and affection” narrative in the registered disposition.  As Lord Clarke observed in Nottay’s Tr v Nottay (above), such a narrative, although not conclusive, will normally create severe difficulties for a defender seeking to establish that adequate consideration was given.  In the present case, however, the persuasive value of the narrative is diminished by the fact that two dispositions were executed, only one of which was in terms suggesting absence of consideration.  On the evidence led at proof, I do not feel able to make a finding with any confidence as to how it came about that two dispositions in different terms were prepared by Mr Ramsay, signed by the debtor and witnessed by Mr Ramsay in one case and by Ms Watt in the other.  I am, however, satisfied on the evidence that the disposition that was signed and witnessed on 17 September 2009 was the one containing the “certain good and onerous causes” narrative.  I accept Mr Ramsay’s evidence to that effect.  Importantly, that evidence is corroborated by the fact that the debtor was able to produce a copy of the disposition in these terms which must have been provided to him before the principal on the conveyancing file was scored through with two red lines.  There is no correspondence on the file to indicate that the copy was sent to the debtor by post, and I see no reason to reject his evidence and that of the defender that it was handed over at the meeting on 17 September 2009 in response to a request from the debtor. 

[22]      In reaching this conclusion, I must reject Ms Watt’s evidence that she witnessed the disposition with the “love, favour and affection” narrative on 17 September 2009.  The difficulty with Ms Watt’s evidence is that both dispositions contain the date “17 September 2009” entered in her handwriting.  I can see no reason why both dispositions would have been signed and witnessed on the same day, and I accept the evidence of the defender, the debtor and Mr Ramsay that they were not.  It must therefore be the case that, contrary to her recollection of events which happened some years ago, Ms Watt entered an incorrect date in at least one of the deeds.  As I have found that the “certain good and onerous causes” disposition was signed and witnessed on 17 September 2009, it must follow that it was the “love, favour and affection” disposition that was signed and witnessed on another date.  It is unnecessary for me to attempt to reach any firm conclusion as to when this was done, although it must have been at a time before it reached Mr Dykes, along with the application for registration form which he amended, on 8 January 2010.  Although there are elements of the debtor’s account of his visit to the Maryhill office in early January, such as his description of being passed only the bottom part of the document under the glass screen, which are at best unconvincing, it does derive support from the dates of Ms Watt’s file note and of the application for registration.  Nor am I able to reach a conclusion as to why an incorrect date may have been inserted, although I observe that delivery of any disposition after 25 September 2009 would have constituted a breach of the inhibition registered against the debtor on that date.  I accept the debtor’s evidence that he did not at any time instruct any alteration to the narrative clause, and that use by Mr Ramsay of the “love, favour and affection” narrative in the disposition that came to be registered in the Land Register was not in accordance with his instructions.

[23]      I also accept Mr Ramsay’s evidence that at the meeting on 17 September 2009 he was told that money had been changing hands between the defender and the debtor during a period prior to that meeting.  This is consistent with his use of the phraseology “for certain good and onerous causes” in the disposition signed and witnessed that day.  It is not consistent with the box ticked on the stamp duty land tax form but I did not have the impression that Mr Ramsay had a close familiarity with SDLT, a view confirmed by the terms of the query to HMRC by Ms Watt on his behalf some months later.  I do not consider it to be inconsistent with the words “no consideration” inserted by Mr Ramsay on 1 September 2009 in the money laundering memorandum; I accept Mr Ramsay’s explanation that his concern in this regard was whether money would be passing through the accounts of the firm, which it was not. 

[24]      I do not place any significant weight on Ms Reid’s evidence that she was unaware, prior to the raising of this action, that the defender and the debtor were contending that the alienation had taken place in consideration of the monthly payments of salary, or that the “love, favour and affection” narrative in the disposition was being challenged as inaccurate.  Having found that the defender and the debtor spoke of this arrangement to Mr Ramsay at the time of execution of the disposition, I do not find it difficult also to accept that it was mentioned by a solicitor acting on behalf of the debtor prior to the commencement of Ms Reid’s involvement in 2012.

[25]      I am not, however, persuaded that the transfer of the subjects by the debtor to the defender was made in return for payments of the defender’s post office salary during the period between April 2007 and September 2009.  I do not find it credible that the parties agreed in 2007 that the subjects would be transferred at a specific date in the future in exchange for advance monthly payments which at the time of the alleged agreement could reasonably have been expected to amount to more than half as much again as the value of the property.  I accept that arrangements entered into between family members are not necessarily comparable with contracts entered into by unconnected parties.  However, the evidence in the present case disclosed no reasonable explanation of why the parties should have agreed that payments would continue for a lengthy period after the debtor had effectively received the full value of the subjects.  Even if the agreed date of transfer was to be the defender’s 25^th birthday, payments could have been stopped before then.  Nor is there any objective justification for making an allowance for interest: on the defender’s scenario, the debtor received payment in advance, during a period when the defender had possession of the post office.  The fact that the defender’s monthly salary was paid into an account in the debtor’s name – or, more accurately, into an account in the name of the debtor’s business – does not of itself prove that the payments were made in return for a consideration or, if so, what that consideration was.  It is equally consistent with an arrangement in terms of which the defender’s salary was a contribution to family expenditure at a time when there appears to have been little else coming into the debtor’s bank account.  In the absence of any contemporaneous evidence of the alleged 2007 agreement, and having regard to its inherent unlikelihood, I hold that the defender has failed to discharge the onus of proving that the monthly payments into the debtor’s account were made in return for a subsequent transfer of the subjects into his name.  I find it more likely than not that the attempted linkage of the monthly payments with the transfer of the subjects was conceived after all but one of the payments had been made, and I reject the evidence of the defender and the debtor to the contrary as not credible.

[26]      I recognise that it is a necessary inference from these findings that I have reached the view that the information provided by the debtor and the defender to Mr Ramsay in September 2009 when instructing him to prepare a disposition was untrue.  I do not regard this as far-fetched.  I am not prepared to assume that the debtor was unaware of the challengeability of a gratuitous alienation made shortly before sequestration.  The fact that an inhibition was registered against the debtor a week after the execution of the disposition is indicative of financial difficulties of which he must have been aware.  The bank statements do not suggest a comfortable financial situation.  In the event his bankruptcy supervened less than four months later.  In these circumstances, it is by no means inherently improbable that the debtor and the defender were attempting in September 2009 to remove the subjects from the reach of creditors.

 

Disposal
[27]      In accordance with the pursuer’s motion, I shall sustain the pursuer’s third and fourth pleas in law, repel the defender’s pleas, and grant decree of reduction in terms of the first conclusion.  Questions of expenses are reserved.