Outer House allows proof in action for reduction of dairy farmer’s loans 

William Lindsay argued that the loan facilities, which concerned one farm in England and another in Scotland, were obtained by facility, circumvention, and lesion. The defender, Outlook Finance Ltd, challenged the relevancy of the actions before proof. 

The case was heard in the Outer House of the Court of Session by Lady Wolffe. 

Increased exposure 

The agreements were entered into by the pursuer’s father, Mr Lindsay, when he was in his late 50s. He was approached by an individual, Mr Fradgley, who made certain proposals to him, the effect of which were to materially increase Mr Lindsay’s exposure, essentially as a guarantor of other debts in the context of intra-family dealings, to the benefit of the defender. Mr Lindsay was not party to those early agreements, and Mr Fradgley was said to have “grossly overstated” the extent of his personal liability. 

It was averred that Mr Fradgley created a company, Metal Bridge Dairy Farm Ltd, which was the vehicle for the earlier agreements that became rolled up or subsumed into those covered by the loan agreements under challenge. Mr Lindsay and his brother were appointed as company directors, but Mr Fradgley maintained a 50% shareholding and controlled all its finances. 

It was averred by the pursuer that Mr Fradgley had pressured Mr Lindsay and his brother at a time of financial stress and demanded they sign the loan agreements which he or the defender had drafted. At the time Mr Lindsay entered into the agreements he suffered from a number of medical conditions for which he was prescribed medication. The pursuer averred that these factors had an impact on his father’s personality and could be a contributing factor to establishing facility. 

The defender argued that there were insufficient averments in respect of each specific factor to plead a relevant case. Therefore, the pursuer’s actions were bound to fail. It was also argued that the pursuer was not offering restitutio in integrum, because he was not offering to return certain cattle and dairy equipment which he had acquired from the defender under the loans. As this was an essential requirement for a reduction, his case was still bound to fail even if there was a relevant ground. 

Shortly before the debate, the legal charge over Metal Bridge Farm was realised, and the farm sold. The defender therefore submitted that there would be no point in seeking reduction where the subjects had already been transferred to a third party in good faith and for value. 

Fact-sensitive assessment 

In her opinion, Lady Wolffe began: “Whether there was facility, circumvention and lesion is necessarily an intensely fact-sensitive assessment and is quintessentially a matter for proof. Rare indeed will be the case where the court can conclude on the averments alone that the case pled is bound to fail. This is not one of those cases. In my view, the pursuer has pled more than a sufficient basis to go to proof.” 

In respect of lesion, she said: “Having regard to the strength of the other factors of facility and lesion, I would be disinclined to uphold a challenge on the lack of specification of lesion. The difference between what was said to have been owed (at the time by the defender) and what is actually owed (as the pursuer asserts in these actions)is averred to be ‘grossly excessive’ and is of such a magnitude that the defender can be in no doubt as to the kind of case the pursuer is making.” 

Regarding whether the requirement of restitutio in integrum could be satisfied, she said: “The approach the defender’s senior counsel adopted is not supported by the cases cited, including those of high authority which are binding on me. Spence v Crawford( 1939) is not authority for a rigid requirement of restitutio in integrum; rather the reverse.” 

Understanding that the defender proposed to sell the cattle and dairy equipment once returned to it, she continued: “That stance does not, in my view, provide strong support for the necessity of requiring restitution of a thing –and, indeed, founding on that to preclude reduction-where the intention is not thereafter to use that thing but to convert it into ready money. This, it seems to me is, a more roundabout way to achieve precisely the kind of alternative compensatory payment discussed by the House of Lords in Spence.” 

Regarding the sale of Metal Bridge Farm, she said: “Under reference to Clarke v Fennoscandia Ltd No.3 (2008) the defender submits that in these circumstances, there is no live issue. In my view that case is distinguishable: the action of declarator is not being used as a means to defeat a concluded action in a sister jurisdiction.” 

She continued: “I accept the explanation provided by the pursuer’s counsel, that the two actions are interlinked: a declarator in favour of the pursuer, if granted, might be relevant to, and be taken into account in, the overall assessment of what might be due by the defender to the pursuer, if the ground for reduction and declarator is established.” 

For these reasons, Lady Wolffe rejected the defender’s submissions and allowed the action to proceed to proof.