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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Gillespie Investments Ltd v Gillespie [2010] ScotCS CSOH_113 (13 August 2010)
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Cite as: [2010] ScotCS CSOH_113, [2010] CSOH 113

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OUTER HOUSE, COURT OF SESSION

[2010] CSOH 113

CA166/08

OPINION OF LORD HODGE

in the cause

GILLESPIE INVESTMENTS LIMITED

Pursuer;

against

THOMAS GRAHAM GILLESPIE

Defender:

­­­­­­­­­­­­­­­­­________________

Pursuer: Iain Ferguson QC, Simpson; Semple Fraser LLP

Defender: McIlvride; Anderson Fyfe LLP

13 August 2010


[1] This is one of two actions which Gillespie Investments Limited ("
GIL") has raised. Each is against one of its former directors. In first action GIL seeks damages of £534,637.42 from Mr Thomas Graham Gillespie ("Mr Graham Gillespie") and in the second action GIL seeks damages of £689,556.97 from Mr Graham Gillespie's son, Mr John McLean Thomson Gillespie ("Mr Scott Gillespie") for alleged breaches of their fiduciary duties as directors of that company. There was a conjoined proof in the two actions and I record the material facts in this opinion.


[2] These are two actions among many raised by members of the Gillespie family or by corporate entities owned by them arising as a consequence of family disputes, the informal and inadequate way in which they administered their businesses and the subsequent breakdown of their relationships.

Background


[3] Four brothers, Graham, Alan, Steven and Gary, worked together in the open‑cast coal industry in which they, and their father before them, made considerable sums of money. They had an interest formerly in J W Soils Supplies Limited and latterly in GM Mining Limited, which was a joint venture between the Gillespie family and the well-known entrepreneur, Sir David Murray, and mined coal at Drumshangie. When their coal interests began to decline in the late 1990s and early 2000s they moved their attention to investment in property and property development. They conducted a number of businesses through various companies and other commercial vehicles. Graham, Steven and Gary Gillespie also had interests in breeding and trading in horses.
Gary was an accomplished show jumper until health problems in 2003 caused him to retire from that activity.


[4] The brothers' relationships were volatile at times and there was a history of rows and on occasion violence and threats of violence. In particular Mr Graham Gillespie assaulted Mr Steven Gillespie in about 2000, fracturing his skull and causing him serious injury. Thereafter, Mr Steven Gillespie (whose full name is James Stevenson Gillespie) pursued business activities, which were not integrated into the other family businesses, through Eastercroft House Limited ("Eastercroft"), whose shares came to be held by his wife. As part of a reorganisation of the family's business interests after the violent incident, Mr Steven Gillespie divested himself of his share in the family's equestrian interests and his brothers divested themselves of their shares in Eastercroft. It appears that Mr Steven Gillespie may have had some residual interests in some property ventures with his brothers but the evidence in the proof did not explore the extent of those interests. The other brothers and his nephew, Scott, co-operated more closely in pursuing property development opportunities through other companies and partnerships or joint ventures, in which Mr Steven Gillespie did not have an interest. The use of
GIL's assets to promote those interests has caused a further breakdown of relationships within the Gillespie family, with Steven and Gary on one side and Graham, Alan and Scott on the other.


[5] In 2002 the four brothers purchased Ingram House,
Ingram Street, Glasgow as an investment and set up GIL which took title to that property. GIL had a share capital of one hundred shares of £1 each and each of the brothers held twenty five shares. The Bank of Scotland funded the purchase but Graham Gillespie also lent GIL about £250,000 to fund the payment of stamp duty and other expenses and also gave the Bank a personal guarantee of GIL's debts of a maximum of £1 million. Ingram House comprised retail premises on the ground and basement levels and office premises on the first to fifth floors. After altering the layout of the building on the ground floor and part of the first floor to attract a retail tenants with a good covenant, in late 2004 GIL negotiated the sale of the basement, ground floor and part of the first floor of Ingram House to an Irish company called the Nutberry Company for £5.7 million. In late 2005 or early 2006 the remainder of the building in GIL's ownership commanded a rental income of about £240,000 and was valued at £4,000,000. The management of Ingram House was GIL's only business.


[6] On
12 May 2006 Eastercroft purchased the share capital of GIL from the four brothers for £4 million pounds. The price was fixed to reflect the value of the company's principal asset, Ingram House. In the Share Purchase Agreement the brothers and Eastercroft agreed that the price would be utilised to the extent of £2,948,637.20 in discharging GIL's indebtedness to the Bank of Scotland ("the Bank") and that the residue of £1,051,362.80 would be shared equally between the four brothers, so that each would receive £262,840.70. Thus Eastercroft acquired GIL, which owned Ingram House and which did not have any debt due to the Bank. I discuss the proper construction of this agreement in more detail in paragraphs [56] to [59] below.


[7] The brothers appear to have innovated on the agreement without entering into a written variation of the Share Purchase Agreement (a) because the debt due by
GIL to the Bank of Scotland was less than £2.9 million and (b) because the Bank required them to transfer the sale proceeds to reduce the indebtedness of two other companies, G Street Properties Limited ("G Street") and Monarch Park Homes Limited (MPH"). As a result the shares of the sale proceeds of three of the brothers went to reduce G Street's and MPH's indebtedness to the Bank and Mr Steven Gillespie, who did not have an interest in G Street, was paid £300,000 as his share of the proceeds.

The governance of GIL


[8] Apart from the volatile personal relationships within the Gillespie family which underlie the many actions which have been raised, the principal cause of these actions in which
GIL is the pursuer is the informal and inadequate way in which the family members managed the affairs of GIL and the other family businesses. It is difficult to come to reliable conclusions on the details of the events leading to the sale of GIL which are in dispute. This results partly from the way in which businesses of GIL and the other family entities were operated. There were no minutes of Board meetings or written records of other meetings or conversations when important decisions were said to have been made. It is, regrettably, also the result of the unsatisfactory nature of some of the evidence which each of the family members, who were directors of GIL, gave. Mr Graham Gillespie, the elder brother and defender in this action, chose not to give evidence, although he appears to have been very influential in the way the family operated their businesses and to have exercised a strong influence over his son, Scott. Mr Alan Gillespie also did not give evidence. Each of Mr Steven Gillespie, Mr Gary Gillespie and Mr Scott Gillespie gave some evidence which I cannot accept and which I conclude was knowingly untruthful. As a result, this is a case where the burden of proof is important in determining the outcome of certain of the issues which have arisen.


[9] Each of the brothers and Mr Scott Gillespie were directors of
GIL. Mr Scott Gillespie was the managing director. Initially he and Mr Gary Gillespie worked in Ingram House. Later Mr Stephen Bird ("Mr Bird"), a twenty five year old and partly qualified accountant, joined them to assist in the financial administration of GIL and the other family businesses. Over time GIL recruited administrative and clerical staff to assist them. The management of GIL generally took up less than fifty per cent of Scott's time. He was active in other property developments in which the three brothers (other than Mr Steven Gillespie) and he had an interest. Mr Gary Gillespie was also involved in identifying and investigating development opportunities after he retired from equestrian activity in about 2003. Scott and Gary had offices in Ingram House in the same suite of offices, initially on 1st floor and later on 5th floor. They worked closely together. Scott was principally responsible for the administration and financial management of GIL while Gary was more concerned with promoting the development of former coal sites, such as Drumshangie, and sites acquired by other family companies and partnerships. Scott alone had authority to sign cheques on behalf of the company.


[10] The family administered various business ventures from
Ingram Street. Those ventures included G Street, of which Mr Graham Gillespie was the sole registered shareholder but Scott gave evidence that his father held the shares in trust for himself, Alan, Gary and Scott. I am not in a position to make any finding as to the existence of such beneficial interest as the circumstances of the creation of the trust were not explored in evidence. G Street had an interest in development properties, including sites at Wattston, Airdrie, Aitken Street, Largs, and Newlands Road, Glasgow, and owned six flats at Lancefield Quay, Glasgow. Another venture was a partnership of which Graham, Scott, Alan and Gary were the partners, which was set up to develop property at Kirkton Park near Auchterarder. Several brothers, but not Steven, had also invested in the development of property at Saltoun Street, Glasgow by providing a loan to its developer who had run into financial difficulty.


[11] Strathbell Limited ("Strathbell") formerly provided haulage services to the family's open cast coal business. The sole shareholder of Strathbell was Mr Scott Gillespie. Again there was a suggestion that he may have held the shares in trust for other members of the family but this was not substantiated. After the open cast business was ended, Strathbell was used as the entity to employ and pay the salaries and wages of
GIL's staff and to meet the expenses of the family in relation to their business activities.


[12] Another family venture was Monarch Park Homes Limited ("
MPH"), which invested in a development opportunity in the West End of Glasgow. There was a separate legal action, which has been resolved, on the issue whether Mr Steven Gillespie's investment in that company was an equity stake or a loan. Mr Graham Gillespie and Mr Scott Gillespie are directors of MPH. Mr Steven Gillespie was formerly also a director.


[13] Another business was Nic Gillespie Limited ("NGL"), whose shareholders were Mr Graham Gillespie and his daughter, Nicola. NGL operated a kitchen retail and installation business in Great Western Road, Glasgow, which closed in 2006. Nicola was principally involved in the family's equestrian business and the day to day management was carried out by a Mr Bill Archibald. Mr Stephen Bird obtained authority from her or her father to obtain funding for the company, which she understood to be borrowings from
GIL.


[14]
GIL, G Street and MPH had overdraft facilities with the Bank. It was not clear whether any facilities were available to other family business entities. It appears that there were certain cross-guarantees in favour of the Bank, but the details were not disclosed. Mr Graham Gillespie and his son, Mr Scott Gillespie, who was, as I have said, primarily responsible for the financial administration of GIL, viewed the family's economic interests as one interest. As a result they used available funds, whether in the form of cash or a borrowing facility, to pay due debts without regard to separate corporate personality or to the fact that not all members of the family had interests in each of the business ventures.


[15] Although the business of
GIL and the other family ventures involved the expenditure of substantial sums of money, the family engaged as their financial controller Mr Stephen Bird, who was relatively young and was not a qualified accountant. Unsurprisingly, he was not able to exercise control over the business activities of family members but sought simply to rationalise what they had done retrospectively. There was some evidence of his attempting to keep records which attributed expenditure to the different business entities but such records as were produced to the court were far from complete. There was also some evidence of the recording of private expenditure paid for by GIL or other entities, which should have been treated as directors' loans or remuneration but it also appeared incomplete. There was no evidence that the directors of GIL paid any tax on alleged bonuses and there was evidence that Mr Graham Gillespie and Mr Alan Gillespie did not.


[16] Mr Stephen Bird gave evidence, which I accept, that he gathered together the invoices from professionals and contractors relating to the various family businesses and obtained the authority of either Mr Scott Gillespie or Mr Gary Gillespie to pay them from available funds. He spoke of monthly meetings at which Scott and Gary considered the invoices and instructed that they should be paid. Mr Scott Gillespie confirmed that such monthly meetings took place. When invoices required to be paid more urgently Mr Bird would approach either Scott or Gary to obtain the needed authorisation. Mr Scott Gillespie signed all of the cheques on behalf of
GIL.


[17]
GIL's business comprised the management of Ingram House and its income came from the rents paid by the commercial tenants. As GIL had received a significant capital sum on the sale of the retail units in 2004 and was profitable it had no need to build up a substantial overdraft in the course of its proper business. The overdraft, which amounted to £2,700,943.15 on 12 May 2006, was in part the result of legitimate company expenditure but was partly the result of payments made to fund the other family commercial ventures in which GIL had no interest and also the private expenditure of family members. The payment of those debts was not expense incurred in the course of GIL's business.


[18] The family's informal business methods also gave rise to factual disputes which are not central to this litigation but which nonetheless were time-consuming in the proof. For example, the defenders in this and the other action alleged that the shareholders of
GIL had decided in about 2004 to give Mr Scott Gillespie and the widow of Mr Ian MacDonald, who had worked as an accountant for GIL, respectively a 10% and 2% stake in that company. The existence of such an agreement was contested by Steven and Gary and was not established in the evidence. If there had been such an agreement, it was not implemented before the shareholders of GIL sold their shares to Eastercroft in May 2006 and the parties must be treated as having departed from that informal agreement. Similarly, but of more significance to this action, an alleged agreement, which Steven and Gary contested, in early 2005 to pay bonuses of £100,000 to each of the directors appears not to have been implemented. GIL's accountants, PKF UK LLP ("PKF"), who also prepared the brothers' tax returns, were not aware of such an agreement and there was no evidence that any tax was paid on such bonuses. I am prepared to accept that the directors of GIL discussed the payment of bonuses, and that Mr Scott Gillespie believed at one time that he was entitled to such a bonus. Mr Stephen Bird understood from Scott that he had agreed to give up his bonus in the period shortly before the share sale in May 2006 and I see no reason to doubt his evidence on that matter. But I am not satisfied that the evidence establishes that there was an agreement to pay the bonuses or that they were ever paid to the other directors. Rather the defender in each case has sought retrospectively to characterise substantial payments to or for the benefit of Mr Graham Gillespie as the payments of the bonus, although the sums had no apparent relationship to the correct sums which would have been paid, after deduction of tax and national insurance contributions, if a bonus of £100,000 for each director had been declared. The suggestion that the payment of £180,000 to Mr Graham Gillespie involved the shares of Alan and Gary Gillespie who owed him money, so that he received three times £60,000, was denied by Gary. Neither Graham nor Alan gave evidence to support the assertion.

The sale of GIL


[19] Mr Scott Gillespie was the person who first suggested that Ingram House could be sold to Mr Steven Gillespie. At first Mr Graham Gillespie opposed the idea but eventually he came round to support it. In order to obtain tax advantages the proposal was altered so that
GIL would be sold for £4 million, which was then the value of Ingram House.


[20] In late October or early November 2005 Mr Scott Gillespie asked Mr Stephen Bird to prepare a document, entitled "Share Transfer Proposal", as a discussion document to illustrate the possible effect of the proposal and the share of the proceeds which each of the shareholders might receive. Steven and Gary denied having seen the document at this time. Steven asserted that he first saw it at the meeting with PKF, to which I refer in the next paragraph. Gary asserted that he did not see the document until March 2007. I do not accept that evidence. I consider that it is highly unlikely that the proposal would first be presented by some of the directors to the accountants for the purposes of obtaining tax advice before the directors and shareholders of
GIL had had an opportunity to consider its terms. I accept the evidence of Mr Stephen Bird, which Mr Scott Gillespie confirmed, that it was given to all of the directors at a meeting in early November 2005 and discussed at that meeting. It appears that Mr Bird had also arranged for GIL's staff to prepare an analysis of the use of GIL's borrowing facility since 2002 to explain the make up of the overdraft. While he initially asserted that the directors had seen the analysis and he had explained it to them, his eventual position in his oral evidence, which I accept, was that he did not give the document to anyone but that he could have explained it if anyone had asked. Neither side was able to locate the document which contained this analysis.


[21] On
13 December 2005 Mr Steven Gillespie, Mr Scott Gillespie and Mr Stephen Bird met with GIL's accountants, Mr Frank Paterson and Mr David Jenkins of PKF to discuss the proposed sale of GIL and to ascertain whether by selling the shares rather than the building, the shareholders could obtain taper relief from Capital Gains Tax. Mr Paterson was the partner responsible for client relations with GIL and Mr Jenkins was a tax specialist. For that meeting, Mr Stephen Bird produced the Share Transfer Proposal which the directors had seen at the meeting referred to in the previous paragraph. It was in the following terms:

"Gillespie Investments

Share Transfer Proposal

£

£

Share Purchase

4,000,000

Less:

JMTG - Bonus

100,000

TGG - Loan

250,000

350,000

GI O/D

2,500,000

Total Deductions

2,850,000

1,150,000

Tax Outstanding

  407,000

743,000

Income Due In

Directors Loan

128,031

Saltoun Street

209,000

Kirkton Park

249,000

586,031

1,329,031

%

Less

SS & KP

Shares

TGG

22

292,387

132,820

159,567

SG

22

292,387

292,387

GG

22

292,387

132,820

159,567

AG

22

292,387

132,820

159,567

JMTG

10

132,903

59,540

73,363

JMcD

2

26,581

26,581

_____________________________________________

100

1,329,031

458,000

871,031

                                                                                         


[22] This meeting is the only even partially documented meeting in the lead up to the sale of
GIL as Mr David Jenkins, on being briefed by Mr Bird, noted in manuscript on the Share Transfer Proposal that the reference to Saltoun Street was a loan to a joint venture company and that Kirkton Park was a loan to a director. The document supports Mr Scott Gillespie's evidence that he believed at the time that he was due a bonus of £100,000. It is significant also because it vouches that monies were due to GIL in respect of Saltoun Street and Kirkton Park. Mr Steven Gillespie unquestionably saw this document at the meeting and cannot have been unaware of its contents as he would have heard Mr Bird explaining its terms to the PKF accountants. Mr Stephen Bird explained in his evidence that the figure of £407,000 for tax was simply his estimate of the Corporation Tax that he believed to be due by GIL and that the entry for the repayment of "directors loan" was his calculation of the aggregate of the personal expenditure of the directors which he derived from the company's records.


[23] After the meeting of 13 December 2005, PKF were able to persuade the Inland Revenue that
GIL should be treated as a trading company and that its shareholders were entitled to taper relief. This took until about March 2006. Thereafter the parties instructed solicitors to act for the vendors and Eastercroft. Mr Stephen Bird acted for both Eastercroft and the vendors in giving instructions to their respective solicitors.


[24] At some stage in early 2006 a further Share Transfer Proposal was prepared. Parties were not able to identify precisely when the document was produced or to match the figure stated as
GIL's overdraft (£2,889,333) to GIL's bank statements. The document was laid out in a similar manner to the earlier document set out in paragraph [21] above. It showed the receipt of £4 million for the shares, from which was deducted a loan due to Mr Graham Gillespie and the company's overdraft. The bonus to Mr Scott Gillespie was omitted from the calculation as was the provision of £407,000 for tax. Thereafter there was added in the item called "directors loan" of £128,000, and monies due in relation to Saltoun Street and Kirkton Park of £209,000 and £249,000 respectively, giving rise to net proceeds of £1,446,968. Those proceeds were then divided between the shareholders of GIL, who (as in the earlier Share Transfer Proposal) were stated to include Mr Scott Gillespie and Mr Ian MacDonald's widow, Julia. After setting off against the entitlements of Graham, Gary, Alan and Scott the sums due to GIL in respect of Saltoun Street and Kirkton Park, the document showed an estimated distribution of £988,698. Of that sum £318,274 was payable to Steven and 203,774 to each of his brothers and smaller sums to Scott and Julia MacDonald. Mr Bird gave a copy to Mr Scott Gillespie. He explained in evidence that it, like its predecessor, was merely a discussion document and not an agreement. It was not clear whether this document was circulated to the directors.


[25] Notwithstanding the general statements by Mr Scott Gillespie and Mr Bird that the detailed make up of the overdraft was discussed with the directors, which Steven and Gary denied and from which Mr Bird departed, I infer from the two Share Transfer Proposals that only the major items of expenditure listed in them as income to be paid to
GIL were ever identified and disclosed to Mr Steven Gillespie. I deal separately with the payments to Strathbell in my opinion in the action against Mr Scott Gillespie.


[26] The Share Purchase Agreement, which Eastercroft and the vendors executed on 12 May 2006, stated that the shareholders of
GIL were Graham, Steven, Alan and Gary and, in the Schedule Part 3, they warranted that they were the legal and beneficial owners of the shares in the company. The agreement provided that the consideration for the purchase of the shares was £1,051,362.80 (clause 3). Clause 4.2 provided that Eastercroft was not obliged to complete the purchase of the shares unless the vendors complied fully with their obligations under Part 5 of the Schedule. In clause 6 the vendors undertook to procure the release of GIL from a guarantee granted in favour of the Dunfermline Building Society. Among the commercial warranties which the vendors granted in Part 3 of the Schedule was a warranty that except as disclosed in its accounts GIL did not have any borrowing other than borrowing arising in the ordinary course of business. Clause 15 provided that the Acquisition Documents (i.e. the Agreement and any documents in the agreed form) constituted the entire agreement between the parties with respect to the subject matter of the agreement. That clause went on to exclude any remedy for misrepresentation or breach of a warranty, which was not stated in the acquisition documents, unless it constituted fraud.


[27] Part 5 of the Schedule to the agreement contained the arrangements for completion. Paragraph 1 provided that each of the vendors should repay or procure the repayment of all sums owed by him or by any person connected with him to
GIL. Paragraph 2.13 provided that the vendors would provide written confirmation in the agreed form that neither they nor any connected persons were indebted to GIL and duly executed deeds of release in the agreed form releasing GIL from any liability to them or to connected persons. There was no evidence that such documents were ever prepared. Paragraph 4 of Part 5 provided that Eastercroft should pay £4 million to the bank account of vendors' solicitors. Paragraph 4.1 provided for the payment of £1,051,362.80, which was stated in clause 3 to be the consideration. Paragraph 4.2 provided that Eastercroft should:

"on behalf of the Company [i.e. GIL] pay by telegraphic transfer the sum of £2,948,637.20, being an amount sufficient to discharge in full the liability of the Company in respect of the Bank Debt [i.e. the amount owed to the Bank on the completion date] to the bank account detailed in paragraph 4.1 of this part 5 of the Schedule. The Purchaser and the Vendors shall procure that instructions are given to the Vendors' Solicitors to pay such funds to the Bank immediately following Completion and discharge in full the liability of the company in respect of the Bank Debt."


[28] Although the parties executed the agreement in these terms, what happened on the day of completion did not precisely reflect the agreement. While it was not clear from the evidence (a) how the figure for Bank Debt referred to above was calculated and (b) whether and if so how the parties altered the arrangement from that agreed in the Share Purchase Agreement, it appears that the Bank insisted that the proceeds of sale were used not only to repay
GIL's indebtedness but also to reduce the indebtedness of G Street and MPH. GIL's indebtedness was not the figure stated in the agreement but was £2,700,943.15. On 12 May 2006 the Bank transferred £988,698.38 to G Street's account and £302,000 to MPH's account from the residue left after paying off GIL's indebtedness. I infer from the amount of the payment to G Street's account that the Bank had had sight of, or had been told about the estimated free proceeds in, the second Share Transfer Proposal and thought that the figure of £988,698 represented the free proceeds, which were available to be distributed to the shareholders and could be transferred to G Street.


[29] The action of the Bank meant that Mr Steven Gillespie did not immediately receive his share of the proceeds, which instead had been transferred by the Bank to reduce the indebtedness of companies in which he had no interest. When he learned that he had not received his share, he expressed his concern forcefully as he had agreed to advance funds to his nephew, Scott, to assist in his purchase of a house. As a result Scott and his father arranged for the Bank to transfer £300,000 to Eastercroft's account. Scott explained in evidence that at the time he had understood that that sum was roughly the sum to which his uncle was entitled from the sale of
GIL's shares. Mr Stephen Gillespie then advanced the sum to his nephew.

Later events


[30] After Eastercroft took over
GIL, Mr Stephen Gillespie retained the services of Mr Stephen Bird to administer the company. He also engaged the services of an accountant, Mr Donald McDonald, to improve the company's financial records and later to investigate the transactions which have become the subject of this dispute. He also approached PKF in an attempt to discover more information about the disputed transactions. In March 2007 Mr Gary Gillespie informed Mr Steven Gillespie that sums which the latter had provided for a property development joint venture in Perth had not been used on that venture, which had not proceeded, but had been diverted, without his knowledge, to support other ventures, in which he had no interest.


[31] In March 2007 Mr Steven Gillespie made a seriously threatening phone call to Mr Bird, accusing him of having misappropriated £2 million. Mr Bird tried to calm him down but Mr Gillespie threatened him and suggested that people were coming round to see him with steel bars and baseball bats to make him talk. He said that they would cut off his penis and would pour petrol over him to make him talk. Mr Bird, alarmed by the threats, hung up and telephoned Mr Graham Gillespie, who attempted to speak to Steven and arranged for Mr Alan Gillespie to telephone Steven to inform him that he was "out of order". Mr Bird also informed the police of the incident so that they were aware of his concerns.


[32] Mr Steven Gillespie also accused his nephew, Scott, of having misappropriated £1.5 million from
GIL. He raised various questions with him concerning the transactions which he said gave rise to the alleged misappropriation of that sum. Mr Scott Gillespie replied by letter dated 30 March 2007. He asserted, inaccurately, that £688,698 had been the share of Graham, Gary, Alan and himself from the share transfer and that the £300,000 paid to MPH was part of Steven's £500,000 equity investment in that company. He explained the investment of £250,000 in Kirkton Park and of £209,000 in Saltoun Street and stated that he had discussed the issue with him at the time, referring him to the "state of settlement" which he attached to his letter and which was the second Share Transfer Proposal (see paragraph [24] above). It appears that he then believed that all of the brothers were investing in MPH. He also asserted, again inaccurately, that £80,000 (sic) paid to Mr Robert Duffin was part of monies due to Alan and Graham as bonuses from the sale of the retail units in Ingram Street. He criticised Steven for having behaved abusively towards Mr Bird. As he thought that Steven no longer trusted him, he undertook to repay the £300,000 loan from Eastercroft when he sold his house that summer.


[33] From then on the family were divided, with Steven and Gary in one camp and Graham, Alan and Scott in the other.

Issues of credibility and reliability


[34] It is striking how few documents the parties have been able to produce to explain the history of the transactions. It was only shortly before the proof that the defenders sought to add Mr Bird as a further witness and produced affidavits by him and his wife, vouching the threatening phone call which Mr Steven Gillespie had made. Mr Bird explained that he had suffered stress, had ceased to work for the Gillespie family and had refused to become involved in their disputes until he relented shortly before the proof. It was only in early February 2010, shortly before the first tranche of evidence in this proof was heard, that the defenders in this action and in the other action sought to amend their pleadings by asserting that the parties had agreed to waive all claims which
GIL might have against them or connected persons on some occasion before the sale of GIL's shares.


[35] It is striking that Mr Graham Gillespie chose not to give evidence in support of his defence, including this assertion of waiver. I have to bear this in mind when deciding what inferences I can take from the proven facts.


[36] It is also striking, and regrettable, that each of the family members gave untrue evidence in part of their testimony. I am satisfied in each case that some of that evidence was not simply a matter of unreliable recollection but was either recklessness as to the truth or knowingly telling untruths.


[37] Mr Steven Gillespie denied the threats of which Mr Bird had spoken and said that, while the discussion had been heated, he had merely said that he needed a "kick in the bollocks". I do not believe this evidence and I am satisfied that Mr Gillespie himself knew it to be untrue. Mr Bird's subsequent behaviour, and in particular his reluctance to co-operate with the pursuers' solicitors by giving a statement and becoming involved in this dispute, is consistent with the account given in his affidavit. More significantly, I do not accept that Mr Steven Gillespie was unaware of the contents of the Share Transfer Proposal referred to in paragraph [21] above until the meeting of
13 December 2005. He gave evidence that he first saw the document at the meeting with PKF on 13 December 2005 and of quizzing Scott about the advances to Saltoun Street and Kirkton Park on the following day. I have held that the document was produced at the earlier meeting of directors. See paragraph [20] above. He must also have heard the discussion about the document at that earlier meeting and on 13 December when Scott explained the entries to Mr David Jenkins, the tax specialist. I do not believe that he was not well aware of the nature of the proposal in that document. Mr Frank Paterson gave evidence, which I accept, that of the brothers, Steven was the best at paying attention to the detail of business transactions. I am satisfied that Mr Steven Gillespie must have known that his assertion at the end of his examination in chief that he and GIL might have lost £3.25 million as a result of the actions of Graham and Scott Gillespie and that in effect he had paid £7 millionn for GIL's shares was fanciful.


[38] I accept however that out of the brothers who were directors of
GIL, Steven had the least involvement in the affairs of GIL and that he was not consulted on the application of the company's funds and borrowing facilities for the benefit of other business ventures in which he had no interest. While there was evidence that Mr Scott Gillespie or Mr Bird had on occasions telephoned some of the directors to obtain clearance for the use of GIL's funds in other transactions, it was not ultimately asserted that Steven was phoned. It was accepted by Scott that of the directors, Steven came into Ingram House the least and that Alan also had limited involvement. I also accept that neither Scott nor Mr Bird gave Steven a detailed breakdown of the use of GIL's overdraft facility before the sale of the shares and that Mr Bird's initial recollection to the contrary is incorrect.


[39] I do not believe Mr Gary Gillespie's evidence that he was not aware of the use of
GIL's funds to meet outgoings of other business ventures and that he did not authorise any of the disputed payments. He must have been aware of the family's use of different companies to pay for its varied activities. While he was active in equestrianism before 2003 he received a salary from a family company, Kirkmuir Limited, although he did not contribute to that company's business. After he had to retire from show-jumping because of health problems, he concentrated on working with surveyors and other professionals to apply for planning permission to develop former coal sites and also assisting the development of sites owned by G Street and other ventures. He worked on a daily basis in Ingram House. He incurred expenses in these activities and at monthly and other meetings with Mr Scott Gillespie and Mr Bird he must have confirmed that invoices and fee notes were due to be paid. He must have been aware that some of the ventures, on whose behalf he incurred expense, did not have the financial means to fund those costs and that the resources of other entities would have to be used for that purpose. He was also aware that Scott and others were engaged in other financial ventures which similarly did not have their own funds. I accept that he did not have responsibility for signing cheques or for the financial administration of GIL and that it was Scott who decided which account was to be used to pay a debt. But he must have been aware that the resources and facilities of GIL were being used to meet the outgoings which he and Scott were incurring on ventures which did not have their own banking facilities. He accepted on cross-examination that it was always the case that family companies paid for the business expenses which family members incurred and that bills were sent to Ingram House for payment. He accepted that Mr Bird reported to him as well as to Scott. Scott or Graham Gillespie may have formally authorised payments but Gary cannot have been unaware of their use of GIL's resources as GIL appears to have had the largest borrowing facility of the Gillespie companies on which the family could draw. I accept that it is possible that some expenses could have been paid by other companies with borrowing facilities, but I do not accept as credible his assertion that he did not know at the time that GIL paid any of the invoices and fee notes which he approved.


[40] Mr Scott Gillespie's evidence was unsatisfactory in several respects. He repeatedly made general assertions which he had to retract when questioned in more detail. He initially asserted that he telephoned all of the directors of
GIL on a regular basis about GIL's expenditure but on further examination accepted that Steven knew only of larger items of expenditure which were incurred. On cross-examination he accepted that he could not identify any disputed payments for which the authority of all the shareholders had been obtained either by phone or at meetings. He asserted that all of the shareholders had agreed in the run up to the share sale that GIL would waive its claims against family members and other entities and that Mr Graham Gillespie and he would waive their claims against GIL so that all sums due to and from GIL were written off. But he could not explain why he had not mentioned this agreement to waive in his letter of 30 March 2007 (paragraph [30] above), which he accepted was inaccurate in several respects, or why he and his father had not pleaded waiver as a defence before February 2010. While I accept that he believed at one time that he was entitled to a bonus of £100,000, he was not able convincingly to explain his failure to take that bonus when by May 2006 he needed to borrow from his uncle to fund house purchase. He said that he had decided to leave it in the company and take it later. He initially asserted that certain payments, including those to Kirkton Park, were gifts rather than loans but had to concede that that was inconsistent with the presentation in the Share Transfer Proposals. He could not explain why in his defences in another action and in letters which his solicitors had written on his behalf it had been asserted that he was the owner of Kirkton Park and that there was no partnership in relation to that property, when he accepted that there was. He also accepted that averments about the approval of the disputed payments in the defences in both of these actions were inaccurate.


[41] I nonetheless accept much of Mr Scott Gillespie's evidence, including that relating to the meeting of the directors in early November 2005 when the first draft of the Share Transfer Proposal was discussed. I accept his evidence that the Bank looked to the later Share Transfer Proposal to transfer £988,698 to G Street's account. I accept also that he sought to achieve what he thought was a fair result for his uncle, Steven, with whom he was then on very good terms, by adding back into the value of
GIL items of expenditure in which Steven had no interest. He could not explain the make up of the directors' loan to be added back in the Share Transfer Proposals but thought that eventually Steven was given more than his entitlement to £262,840.70 under the Share Purchase Agreement to take account of the expenditure on Saltoun Street and Kirkton Park in which he had no interest. While the Share Transfer Proposals did not cover many of the disputed items, it is not clear whether Scott had accurate records of the transfers of GIL's money to G Street and other ventures. I am satisfied that in a rough and ready way Scott attempted to achieve what he believed to be a fair distribution for his uncle.


[42] As I have said, the lack of contemporaneous documentation has made it very difficult for counsel and the parties' solicitors to piece together the events which are the subject matter of this action. There was also no evidence from the legal advisers of Eastercroft and the vendors, namely
DLA and Maclay Murray and Spens to explain the negotiation of the Share Purchase Agreement and what was agreed between the parties immediately before the deal was signed. This is unfortunate as some of the oral evidence explaining the lead up to the deal was impressionistic at best and the sum paid to Mr Steven Gillespie could not be reconciled with his contractual entitlement under the Share Purchase Agreement or to the second Share Transfer Proposal. Nor is it clear what role Mr Steven Gillespie played in instructing Eastercroft's solicitors in the negotiation of the Sale Purchase Agreement. He appears to have left much to Scott and Mr Bird. But Mr Bird stated that he consulted Steven on the proposed warranties and whenever DLA raised questions with him and he understood that Steven communicated directly with DLA. Mr Steven Gillespie was not able to explain an email by Helen Smith of Maclay Murray & Spens, the vendors' solicitors, dated 10 May 2006 to Mr Bird. This email recorded that she had spoken to DLA and her understanding that it had been agreed, among other things, that the director's loan (which she stated to be a loan to Graham Gillespie), Saltoun Street and Kirkton Park were "now out of the equation". Mr Bird gave evidence that there was an understanding shortly before the settlement of the sale in May 2006 that those sums would not be repaid to GIL but he did not know if all directors were informed of this. It would have been very helpful if more evidence had been available as to what instructions Mr Steven Gillespie had given DLA and who agreed that those sums would not be repaid to GIL. Without such evidence I am unable to conclude that there was such an agreement between the vendors and purchasers or between all of the shareholders of GIL.

The disputed payments: the Joint Minute


[43] Counsel helpfully agreed a Joint Minute setting out the disputed payments and agreeing, where they could, the beneficiary of those payments. They agreed that Graham Gillespie authorised the making of each of the payments. In summary, it was accepted that payments out of
GIL's funds were made for the benefit of the following persons or entities:

(a) G Street Properties Ltd

£52,644.40 and

£3,743.31

(b) Nic Gillespie Ltd

£24,164.78

(c) The defender

£180,000 and

£19,800

(d) Savills (for the defender's benefit)

£4,215.15

Maclay Murray & Spens (ditto)

£31,700.33

(e) Robert Duffin

£86,500.00

(f) Ernst Hofschruer

£111,597.45

g) Murray Aviation and

£13,377.00

Ocean Sky Aviation

£6,895.00

It was also agreed that Herr Hofschruer paid £26,475 into GIL's account and that between 14 February 2005 and 2 May 2006 sums totalling £304,282.54 were paid into GIL's account. Nothing was made in the parties' submissions of the latter sums, which included the payment in of £250,000 on 27 October 2005, or of the agreed payment of certain relatively small sums as expenses incurred by Mr Gary Gillespie. In my opinion, in ascertaining the net sums misappropriated from GIL, the sum paid by Mr Hofschruer falls to be set off against the sums paid to him but otherwise I have no basis for attributing the payments into GIL's bank account to particular transactions.


[44] It was suggested by Mr Scott Gillespie that the two payments to the defender in (c) above were payments of a bonus agreed after the sale of the retail units at Ingram House. While there may have been discussions of a bonus, I am not persuaded that
GIL ever formally authorised or implemented any agreement to pay bonuses. See paragraph [18] above. Accordingly, the payments are an unauthorised use of GIL's funds.


[45] I am satisfied that the payments in (e) to Mr Duffin, who was known as "Rab the Bookie", were not expenses relating to
GIL's business. I do not accept the assertion that the payment was part of the agreement to pay a bonus to the directors. There was evidence that Mr Duffin was a professional gambler and an associate of the Mr Graham Gillespie, who also enjoyed betting. I am satisfied that the payments fall to be treated as appropriations of GIL's funds to Mr Graham Gillespie's personal benefit.


[46] Similarly the payments in (f) to Herr Hofschruer fall to be treated as sums used for Mr Graham Gillespie's personal benefit. Herr Hofschruer was an equestrian specialist and a dealer in horses. The payments related to the purchase of horses for the defender's equestrian business and were nothing to do with
GIL's business. The net sum after allowing for Herr Hofschruer's payment to GIL is therefore the extent of the misappropriation. The payments in (g) to Murray Aviation and Ocean Sky Aviation related to the charter of private jets by Mr Graham Gillespie in relation to his equestrian interests or personal expenditure and were not expenses incurred in relation to GIL's business.

Counsels' submissions


[47] Mr Iain Ferguson QC for the pursuers submitted that the defender in each action was clearly in breach of his fiduciary duty in allowing, authorising or receiving the contested payments. He referred to well-known case law on fiduciary duty - Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461, Boardman v Phipps [1967] 2 AC 46, In re Smith and Fawcett Ltd [1942] Ch 304 - and to the textbooks, Gloag & Henderson (12th ed.) paragraph 3.03 and the Stair Memorial Encyclopaedia, Vol.4 at paragraph 416. It did not matter in each case that the defender's interest was indirect, for example though an interest in a company or partnership: Aberdeen Railway Co, Bhullar v Bhullar [2003] 2 BCLC 241. Consent to a transaction involving a conflict of interest, such as the appropriation of company funds for personal benefit, had to consist of the informed consent of all of the shareholders and the onus of proving that consent in each case rested on the defender: Taylor v Hillhouse's Trustees (1901) 9
SLT 31, Dunne v English (1874) L.R. 18 Eq 525 and Hurstanger Ltd v Wilson [2007] 1 WLR 2351, Bowstead & Reynolds on Agency (18th ed.) paragraph 6-057 and Wilson & Duncan on Trusts (2nd ed.) paragraph 26-30. There was no evidence of such consent. In relation to the company's entitlement to damages for loss caused by breach of fiduciary duty he referred to Tayplan Ltd v Smith [2009] CSOH 93 and Regentcrest plc (in liquidation) [2001] 2 BCLC 80. He submitted also that there was no evidence to support the plea of waiver by GIL of its claims against its directors and referred to Millar v Dickson 2002 SC (PC) 30, Lord Bingham of Cornhill at p.43F. He submitted that there was no basis on which the court could properly grant relief from liability for breach of fiduciary duty and referred me to In re Duomatic Ltd [1969] 2 Ch 365, Re D'Jan of London Ltd [1994] 1 BCLC 561, and Re Duckwari plc (No 2) [1997] 2 BCLC 729. The burden of proving honesty and reasonableness was on those asking for relief: Re Kirkbys Coaches Ltd [1991] BCC 130, Hoffmann J at p.131, Bairstow and Others v Queens Moat Houses plc [2001] 2 BCLC 531, Re In a Flap Envelope Co Ltd (in Liq.) [2003] BCC 487.


[48] Mr McIlvride for the defender conceded that all of the payments except those relating to the alleged bonuses were not authorised by informal meetings of the whole members of the company. The issues therefore were (i) whether
GIL had waived its right to seek repayment of the sums; (ii) whether GIL had suffered loss when the shareholders and directors had repaid the sums which had been appropriated for other purposes by paying off the company's indebtedness to the Bank in May 2006, (iii) whether, in any event, the defender in each case was entitled to be relieved of liability under section 1157 of the Companies Act 2006 as the misappropriations had been repaid in full and (iv) if not, whether the sums sued for were excessive. He submitted that GIL had waived its right to seek damages, that in any event there was no loss and, which failing, that the defender was in each case entitled to relief. In relation to issue (iii) he referred to Gore-Browne on Companies (45th ed.) paragraph 17[3], In re Duomatic Ltd, Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258, Guinness plc v Saunders [1990] 2 AC 663, Smith v Croft (No 2) [1988] Ch 114 and Royal Brunei Airlines SDN. BHD. v Tan [1995] 2 AC 378. In relation to the submission that GIL was not entitled to damages because it had not suffered loss, he submitted that no damages were due if loss had not occurred or if the loss had been made good; he referred to Menzies, Trustees (2nd ed.) pp.684-686, Mackenzie Stuart, The Law of Trusts, pp.371-375, Town & Country Bank v Walker (1904) 12 SLT 411, Buchanan v Eaton 1911 SC (HL) 40, McKnight's Trustees v Free Church of Scotland 1916 SC 349, Target Holdings Ltd v Redferns [1996] AC 421 and In re Exchange Banking Co (Flitcroft's case) (1882) L.R. 21 Ch D 519.

Discussion

(i) Breach of fiduciary duty


[48] It is not disputed that the defender in each case acted in breach of his fiduciary duty as a director of
GIL in allowing a conflict of interest between his duties as director and his personal interests in relation to the impugned transactions. Nor did Mr McIlvride seek to argue in either case that the defender had established his defence of informed consent to all of the transactions; he confined that defence to the question of the bonuses.


[49] I am not persuaded that it has been demonstrated that
GIL consented to the payment of bonuses of £100,000 gross to each of its directors following the sale of the retail units in Ingram House. As I have stated (in paragraph [18] above) I accept that there were discussions about a bonus in late 2004 or early 2005 and Mr Scott Gillespie believed in late 2005, when he produced the first Share Transfer Proposal, that he was entitled to such a bonus. But there were no minutes of any such agreement; there was no evidence of payments to each of the directors of sums which could clearly be attributed to a decision to grant such a bonus; there was no evidence that any of the directors declared such a bonus as part of their income to HMRC; and there was evidence that Mr Frank Paterson, the accountant for GIL and the directors personally, was unaware of the decision to pay or payment such bonuses. I am therefore not prepared to accept that GIL consented to the payment of bonuses to any of the directors.

(ii) Waiver


[50] I am not persuaded that the defender in either action has made out a case of a general waiver by
GIL of its claims against family members and connected entities in return for a waiver by Graham and Scott Gillespie of their claims against the company. There is no reliable evidence to show when this alleged agreement was reached. The terms of the clause 1 of Part 5 to the Schedule of the Share Purchase Agreement (paragraph [26] above) do not support such an agreement and the actions of the parties, not least in paying Steven more than his entitlement under the Share Purchase Agreement, suggest that there was no such agreement. There is also a legal difficulty with the defence of waiver.


[51] Waiver denotes the voluntary abandonment of a right: see Reid & Blackie, "Personal Bar" (2006) at paragraph 3-08. As those authors state (at paragraph 3-11), "before a right can be regarded as waived, its holder must know of its existence." In Millar v Dickson Lord Bingham of Cornhill stated (at paragraph 31):

"[I]t cannot meaningfully be said that a party has voluntarily elected not to claim a right or raise an objection if he is unaware that it is open to him to make the claim or raise the objection."

In this case I accept on the balance of probabilities that all of the shareholders of GIL were aware to some degree of the use of the company's funds for wider family purposes. I am satisfied that all of the directors must have been aware that GIL's funds were used to reimburse Strathbell for the payment of its (GIL's) wage bills and other administrative expenses. It is also clear that all of the shareholders will have been aware of the funds transferred from GIL to the Kirkton Park and Saltoun Street ventures as those were disclosed in the two Share Transfer Proposals. There was also mention in those documents of a director's loan to be repaid but there was no reliable evidence as to who was due to pay that to GIL. It is likely that the sums relate to items of expenditure which were to be attributed to the personal accounts of individual directors, of which Mr Bird had tried to keep a record in GIL's financial records. There was no reliable evidence that all of the shareholders knew of the other transactions or that they consented to abandon GIL's claims in relation to them. Rather, as I have said, the Share Transfer Proposals appear to have been an attempt by Mr Scott Gillespie to identify the transactions from which some members of the family but not others had obtained benefit and to provide a scheme of division of the proceeds which took account of that. The problem, however, is that the exercise was far from complete.


[52] In the circumstances I am satisfied that the defence of waiver must fail in relation to the claims made against the defender in each of the actions.

(iii) Relief under section 1157 of the Companies Act 2006


[53] Section 1157 of the Companies Act 2006 imposes three hurdles before the court can grant relief from liability to a director who was in breach of his fiduciary duty to a company. First, the court must be satisfied that the director has acted honestly. Secondly it must be satisfied that he has acted reasonably. Thirdly, if the first two hurdles are crossed, the court, having regard to all of the circumstances of the case, must be persuaded that the director ought fairly to be excused for his breach of duty. Only if all three hurdles have been surmounted does the court have a discretionary power to grant relief in whole or in part.


[54] In this case and in the case against Mr Scott Gillespie, I have to consider both honesty and reasonableness as preconditions to the addressing of the question whether a breach should be excused. I have no reliable basis for judging the honesty of Mr Graham Gillespie's actions as he has chosen not to give evidence. He has not discharged the onus on him in that regard. In relation to Mr Scott Gillespie, I consider that he sought in a rough and ready way before the share sale to allocate the expected proceeds in an equitable way between the shareholders in the two Share Transfer Proposals. I do not consider that his actions at that time were either subjectively or objectively dishonest. He was the youngest member of the family who was a director of
GIL and he would have been aware from the outset of his involvement of the informal way in which his father and his uncles conducted the family businesses. I recognise that there are serious questions about Scott's candour in relation to transactions concerning Kirkton Park once Steven and Gary Gillespie had fallen out with the other family members but that was later on. In any event I am not satisfied that either defender acted reasonably in their failure to keep proper records to vouch the various transactions and thereby to have a proper basis for the reimbursement of the company by the persons who benefited from the irregular appropriation of its funds. I am therefore not in a position to grant relief under section 1157. Had I concluded that the defender in each action had acted reasonably in the circumstances, I would still have been disinclined to grant relief as I do not think that either ought to be excused the consequences of their lax governance. I note that in Re Duckwari plc (No 2) Judge Paul Baker QC (at p.737) took account of the personal interest of a director in a transaction as a factor which pointed against the fairness of granting relief. In my opinion the combination of lax governance and personal gain in these cases would have militated against the grant of relief.

(iv) Whether GIL suffered loss


[55] Having disposed of the various defences, I consider that the central issue is whether
GIL can be said to have suffered any loss when its overdraft was repaid in the implementation of the Share Purchase Agreement. The repayment of GIL's borrowings removed that company's liability to the Bank which included the liability resulting from the irregular transactions which were the subject of this action and the action against Mr Scott Gillespie. Thus after that repayment GIL had a value which reflected principally the value of Ingram House and had no liabilities resulting from the irregular transactions.


[56] Mr Ferguson submitted that
GIL had suffered loss as it incurred borrowings of about £2.9 million in part as a result of unauthorised use of its bank facilities to benefit the defender in each action and other ventures in which the defenders had an interest. He submitted that, if the unauthorised payments had not been made, the borrowings would have been only about £1.2 million. The consideration which Eastercroft paid for the shares was approximately £1.1 million and part of the money which Eastercroft paid to the Bank would otherwise have been available to GIL and thus to its shareholders. This was because the Share Purchase Agreement gave the vendors an entitlement only to the £1.1 million. Everything else after repayment of the borrowings would be available to GIL. It was Eastercroft and not the shareholders who paid off GIL's borrowings from the Bank.


[57] I do not accept this construction of the Share Purchase Agreement. That agreement falls to be construed against the relevant factual background known to the parties at the time it was executed. It was not disputed that the genesis of the agreement was the decision to sell Ingram House to Eastercroft for £4 million and that the corporate transaction was a means of obtaining taper relief for the vendors. Mr Ferguson in his written submission accepted that Eastercroft paid £4 million for the shares. In my view the Share Purchase Agreement reflected a decision among the vendors that the bank borrowings would be repaid out of the sale proceeds and that the residue of those proceeds would be distributed among them. This arrangement was presaged in the two Share Transfer Proposals (see paragraphs [21] and [24] above) and there was no evidence that the parties departed fundamentally from that arrangement when the Share Purchase Agreement was finalised. Thus the shareholders arranged that when
GIL was transferred to Eastercroft, it had a value which reflected the agreed purchase price of £4 million and as a consequence had not been devalued by the irregular transactions. In effect the shareholders, by agreeing to have its indebtedness paid off and in the knowledge of certain irregular transactions, indemnified GIL against the loss which it had incurred as a result of the irregular transactions and which comprised a considerable proportion of that indebtedness.


[58] That in my view is the explanation of the split of the £4 million paid by Eastercroft in clause 3 of and paragraph 4 of Part 5 of the Schedule to the Share Purchase Agreement: see paragraphs [26] and [27] above. It was the intention of the parties that Eastercroft would pay £4 million to acquire
GIL. It was not the intention of any of the parties to the Share Purchase Agreement that GIL would be worth more or less than £4 million when it was sold. It follows that it was not the intention of the parties that Eastercroft's payment of sums to the Bank to discharge its borrowings was a loan to GIL or was anything other than part of the consideration to the vendors for their shares. Mr Ferguson's submission rested on the proposition that, but for the misappropriations, GIL would have retained more of the £4 million paid by Eastercroft and so had suffered loss. I cannot accept that. Mr Steven Gillespie was clear in his evidence as to the agreement: the price paid for the shares of GIL was to be the value of the building, that the company's overdraft would be paid off and that the residue of the proceeds would be distributed among the shareholders. No witness suggested otherwise. It was never the intention of any of the parties that some of the purchase price for the acquisition of the shares of GIL would become the property of GIL. If GIL's indebtedness to the Bank had been lower, the vendors would have received more.


[59] In expressing this view I have not overlooked clause 15 of the Share Purchase Agreement, which is an "entire agreement" clause. See paragraph [26] above. In my view, as a generality, "entire agreement" clauses are designed to prevent material outside the written document becoming part of the contract, for example in the form of a collateral contract or an implied term through custom and usage. I am satisfied in this case that clause 15 was designed to achieve this purpose and also to exclude claims for misrepresentation other than fraud. It is no doubt possible for parties to frame a clause which seeks to exclude consideration of extrinsic evidence when construing the contract and forces the reader to find its meaning exclusively within the four corners of the document. But I would expect clear words to manifest such an intention. This is not such a clause. In considering this clause I have had regard to Lord Reed's opinion in Macdonald Estates
PLC v Regenesis (2005) Dunfermline Ltd 2007 SLT 791, and especially paragraphs [126] to [131]. When one has regard to the admissible surrounding circumstances which were known to the parties at the time of the agreement, it is clear that there could not have been a surplus from the £4 million paid by Eastercroft which would be retained by GIL.


[60] Mr McIlvride argued that because the shareholders had paid off
GIL's borrowings in the context of the share sale, there was no diminution in its value and thus no loss for which damages could be due. As a result the defender in each action should be assoilzied.


[61] In discussion during the proof on the effect of the repayment of
GIL's borrowings in implementation of the Share Purchase Agreement and during submissions I voiced concerns about the consequences of each side's position. If Mr Ferguson were correct, GIL would receive a windfall through the payment of sums to which none of its shareholders envisaged it to be entitled and the shareholders' forgoing of part of the proceeds of the sale would in effect be overlooked. I am satisfied for the reasons set out above that Mr Ferguson's approach is incorrect as it proceeds on an erroneous interpretation of the Share Purchase Agreement. But I was and am equally concerned about Mr McIlvride's position, which would have the effect that the defender in each case would retain part of the benefit which he derived directly or indirectly from his breach of fiduciary duty as a result of the repayment of the company's borrowings. Although not all of the shareholders were aware of the benefit which the defender in each case had received, the shareholders' indemnification of GIL from loss occasioned by the use of its borrowing facilities would give the directors in breach of their fiduciary duty a windfall benefit.


[62] I invited counsel to consider (a) whether
GIL was entitled to damages on condition that it reimbursed Mr Steven Gillespie his proportionate share of the sum paid to reduce the company's borrowings to the extent that they were attributable to the established breaches of fiduciary duty and (b) in any event whether Mr Graham Gillespie was entitled to any credit for any part of his share of the sums used to pay off GIL's borrowings. I suggested that the case might be put out by order once I had written my opinion on the other issues which had been raised.


[63] By letter date 21 July 2010 solicitors acting for
GIL and Eastercroft stated that their primary position was that GIL itself had sustained a loss but that it and Eastercroft were prepared to give an undertaking in the following terms:

"On payment in full by both defenders of any award of principal, interest and expenses (as agreed or taxed) made in favour of Gillespie Investments Limited, the said Gillespie Investments Limited undertake to pay the principal sum, less any expense incurred by Gillespie Investments Limited for the purposes of these actions that is not recovered from the Defenders, to Eastercroft House Limited.

Upon receipt of such payment Eastercroft House Limited undertake to pay one quarter of the said sum received by them, from Gillespie Investments Limited to each of the four brothers: James Stevenson Gillespie, Gary Stanfield Gillespie, Alan Wilkinson Stanfield Gillespie and Thomas Graham Gillespie."

The solicitors explained that the undertaking had been so structured as it was their position that since 12 May 2006 Eastercroft was a creditor of GIL to the extent that it had paid off GIL's borrowings to the Bank. The solicitors invited me to put the case out by order for further discussion of this proposal.


[64] I consider that it is necessary in the interests of justice for me to hear further submissions on (a) whether
GIL can recover sums as damages subject to the condition that it pays over those sums to those shareholders who indemnified the company without being informed of the breaches of fiduciary duty, (b) whether Mr Graham Gillespie is entitled to set off against any liability to GIL part or all of the share of the sale proceeds which he did not receive because it was used to pay off that part of GIL's indebtedness which was caused by the breaches of fiduciary duty, and (c) whether and on what basis Mr Gary Gillespie and Mr Alan Gillespie would be entitled to payment under (a) as well as Mr Steven Gillespie. For the avoidance of doubt question (a) above raises an issue of competency as well as the merits. I am prepared also to hear submissions on the proposal in paragraph [63] above and whether there are other means of achieving justice in the circumstances.

Conclusion


[65] I have decided to invite parties to lodge written submissions on the issues raised in paragraph [64] above within four weeks of the date of this opinion. I will put this action and that against Mr Scott Gillespie out by order for an oral hearing on those issues.


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