Henderson v. 3052775 Nova Scotia Ltd

The House of Lords considered an appeal against the grant of summary decree under rule 21.2 of the Rules of the Court of Session in an action by a liquidator under section 242 of the Insolvency Act 1986 seeking reduction of a disposition as a gratuitous alienation. The court restated the proper approach to motions for summary decree: the judge may look beyond pleadings to documents and affidavits to clarify facts, but must not resolve issues that can properly be decided only at proof. The correct test is whether, on material that can properly be relied on at the motion, the defender is bound to fail; if not, the matter must go to proof. Applying that test, the House held that factual issues (notably whether Nova Scotia assumed £1.85m of Letham Grange debt as part of the consideration) required resolution at proof and that the Extra Division erred in finding the defence neither genuine nor authentic.

This is an appeal from an interlocutor of the Scottish Court of Session following motions for summary decree. The pursuer, the liquidator of Letham Grange Development Co Ltd, sought reduction of a disposition to 3052775 Nova Scotia Ltd under section 242 of the Insolvency Act 1986 on the ground that the disposition was for inadequate consideration (the disposition recorded a price of £248,100 though earlier purchase price and valuations were much higher).

The appellants (Nova Scotia) admitted the disposition but averred that the purchase price recorded was only part of the consideration, asserting that Nova Scotia had assumed £1.85m of debt owed by Letham Grange to members of the Liu family and that contemporaneous documents (a sole-director resolution of 7 February 2001 and a letter of 8/28 February 2001) supported that case. The liquidator enrolled a motion under rule 21.2 of the Rules of the Court of Session for summary decree on the ground that no defence was disclosed. The Lord Ordinary granted summary decree; after amendment and further procedure the Extra Division (refusing a reclaiming motion) concluded the defence was not genuine or authentic (2005 1 SC 325).

The House examined the scope and purpose of rule 21.2, emphasising that it exists to prevent abuse by defenders lodging skeleton or spurious defences but also that it must not be used to deprive a defender of the right to lead evidence at proof where there are matters that can only properly be determined on oral evidence. The court applied earlier authority on relevancy (including Jamieson v Jamieson) and said the judge on a summary motion may act on documents and affidavits to clarify facts but must be satisfied that even if the defender proves the substance of his clarified case he would still be bound to fail. On the facts before the House, the question whether the assumption of the £1.85m liability formed part of the contractual consideration raised issues requiring proof. The House therefore allowed the appeal and remitted the case to the Inner House for further procedure.

Nature of claim: reduction of disposition under section 242 of the Insolvency Act 1986; relief sought: decree of reduction/other redress; issues framed: scope of rule 21.2 summary procedure, test for granting summary decree, whether assumption of liability constituted adequate consideration, and whether factual disputes required proof. Reasoning: the rule allows limited fact clarification from documents and affidavits but not resolution of contested factual issues that should be tried at proof; the material before the courts did not show that the defenders were bound to fail on their case about assumption of the Liu-family debt.

Appeal allowed. The House held that the Extra Division was wrong to conclude the defence was neither genuine nor authentic; rule 21.2 permits the court to look beyond pleadings to documents and affidavits to clarify matters, but a summary decree may be granted only where the defender would be bound to fail even if the clarified facts were proved. Here there were material factual issues (including whether an assumption of £1.85m of debt formed part of the consideration) that required determination at proof, so summary decree was inappropriate.

Outer House (Lord Carloway) granted summary decree; Inner House allowed a minute of amendment, recalled the interlocutor and remitted for further hearing; Lord Carloway again granted summary decree; Extra Division (Lord MacLean, Lord Philip and Lord Hardie) refused the reclaiming motion and adhered to the Lord Ordinary's interlocutor (2005 1 SC 325). The appellants appealed to the House of Lords ([2006] UKHL 21).