Henderson v Foxworth Investments Limited and another

An appellate court may interfere with a trial judge’s findings of fact where there is an identifiable material error, or where the decision cannot reasonably be explained or justified. “Plainly wrong” does not mean that the appellate court confidently would have reached another conclusion. The question is whether no reasonable judge could have reached the decision.

A trial judge must consider all material evidence, but need not discuss every item or present a balanced narrative. The weight of evidence, especially credibility evidence, is primarily for that judge.

For section 242(4)(b) of the Insolvency Act 1986, an enforceable assumption of debt can form part of adequate consideration if undertaken as the counterpart of the alienor’s obligations. Contemporaneous documentation is not essential.

A company sold a hotel and golf-course property to a related company for a recorded cash price substantially below its value. The liquidator sought reduction of a standard security subsequently granted over the property. The defenders maintained that the purchaser had also assumed £1.85m of the seller’s debts, so the sale had been made for adequate consideration under section 242(4)(b) of the Insolvency Act 1986.

The Lord Ordinary accepted that evidence and refused reduction: [2011] CSOH 66; 2011 SLT 1152. The Extra Division reversed his decision, holding that he had erred concerning the timing and enforceability of the assumed obligation and had given inadequate reasons. It granted reduction of the security: [2013] CSIH 13; 2013 SLT 445.

The central questions were whether the Lord Ordinary had made an error of law and whether the appellate court was entitled to reopen his factual findings. A related appeal concerned his order on expenses.

1. Appeal allowed unanimously. Lord Reed delivered the judgment, with which Lord Kerr, Lord Sumption, Lord Carnwath and Lord Toulson agreed. The Extra Division had no proper basis for displacing the Lord Ordinary’s findings.

2. The Lord Ordinary had understood that an assumed debt could constitute consideration under section 242(4)(b) of the Insolvency Act 1986 only if the obligation was undertaken as the counterpart of the seller’s obligations. Properly read, his findings meant that, before completion, the purchaser had decided to assume £1.85m of debt with the agreement of the relevant creditors. He was entitled to find that this created an enforceable obligation rather than a mere statement of intent. The documents could be created later to record an obligation already undertaken.

3. Following and explaining Thomas v Thomas 1947 SC (HL) 45; [1947] AC 484, “plainly wrong” does not describe the appellate court’s degree of confidence that it would have decided differently. It means that the trial decision cannot reasonably be explained or justified. In the absence of another identifiable error, an appellate court may interfere only where no reasonable judge could have reached the decision.

4. Identifiable errors include, without exhaustiveness, a material error of law, a critical factual finding with no evidential basis, a demonstrable misunderstanding of relevant evidence, or a demonstrable failure to consider relevant evidence. This developed the principles discussed in McGraddie v McGraddie [2013] UKSC 58.

5. A trial judge must consider all material evidence but need not discuss every item. Unless there is a compelling reason to conclude otherwise, an appellate court assumes that the judge considered the whole evidence. The weight given to particular evidence, especially evidence bearing on credibility, is pre-eminently for the trial judge. An allegedly unbalanced presentation of the evidence justifies intervention only where the resulting conclusion is rationally insupportable.

6. The Lord Ordinary had recognised and assessed the matters adverse to the principal witness’s credibility, including the unclear reason for the transaction, inconsistent claims in the liquidation, changes in his account and uncertainties concerning documentary dates. He was nevertheless entitled to attach decisive importance to the unchallenged evidence that the family loans existed and to accept the witness on the essential issues. The Extra Division had substituted its assessment without establishing any permissible ground of appellate intervention.

7. Questions concerning expenses in the Court of Session were generally best determined there. The non-payment of an earlier award could be considered with all relevant circumstances when an award was made. The expenses question should therefore be remitted to the Lord Ordinary. The parties were invited to make submissions on the appropriate form of order.

1. United Kingdom Supreme Court: Unanimously allowed the appeal in [2014] UKSC 41. It held that the Extra Division had no proper basis for displacing the Lord Ordinary’s findings and invited submissions on the form of order. It accepted that the Outer House expenses question should be remitted.
2. Inner House of the Court of Session, Extra Division: Allowed the liquidator’s appeal, reversed the Lord Ordinary and granted reduction of the standard security: [2013] CSIH 13; 2013 SLT 445. It also recalled the Lord Ordinary’s expenses order.
3. Outer House of the Court of Session: The Lord Ordinary held that the sale was made for adequate consideration under the Insolvency Act 1986 and refused reduction of the standard security: [2011] CSOH 66; 2011 SLT 1152. His expenses decision, containing a restriction on enforcement, was reported at [2011] CSOH 104.