EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Hardie Lord Emslie Lord Wheatley	[2011] CSIH 12 CA87/08 OPINION OF THE COURT delivered by LORD HARDIE in the cause EASTFORD LIMITED Pursuer and Respondent; against (FIRST) THOMAS GRAHAM GILLESPIE and (SECOND) AIRDRIE NORTH LIMITED Defenders and Reclaimers: _______

Act: Currie, Q.C.,; McIlvride; Anderson Fyfe, LLP

Alt: Sellar, Q.C.; Semple Fraser

18 February 2011

Introduction

[1] In this action the pursuer seeks to enforce its rights over property obtained by the first defender allegedly in breach of fiduciary duties owed by him to the pursuer as one of its directors. The property in question is the issued share capital of GM Drumshangie Limited and, through that company, land at a site near Airdrie. The issued share capital of GM Drumshangie Limited is held by the second defender on the instructions of the first defender. The second defender is wholly owned and controlled by the first defender.

[2] Although this reclaiming motion is directed against the interlocutor of the Lord Ordinary dated 25 October 2010 in which the Lord Ordinary repelled the first plea-in-law for the defenders seeking dismissal of the action together with a consequent award of expenses in favour of the defenders, this was the second occasion on which the Lord Ordinary had pronounced such an interlocutor. The first occasion was on 20 August 2009 but that interlocutor was reclaimed, with leave of the Court. While the case was before the Inner House, the pursuer amended its pleadings as a result of which the Court recalled the interlocutor of the Lord Ordinary dated 20 August 2009 and remitted the case to him to proceed as accords.

Factual background

[3] In each of his Opinions the Lord Ordinary has helpfully set out the background to this litigation from which it appears that the Gillespie family has operated a successful business for many years. The business included open cast coal mining and, more recently, property development. In recent years family relationships have broken down, resulting in numerous Court actions between family members. The present action is at the instance of a family company which alleges that the first named defender has acted in breach of his fiduciary duty to the company as outlined above.

[4] Four brothers, namely James Stevenson Gillespie ("Steven Gillespie"), Gary Gillespie, Graham Gillespie and Alan Gillespie each hold 25% of the pursuer's share capital and each of them is a director of the company. In the summer of 2008 Steven and Gary Gillespie instructed solicitors to raise this action in the name of the company. At a hearing before calling, on 19 August 2008, the pursuer obtained an interim interdict prohibiting the defenders from burdening or transferring out of the ownership of GM Drumshangie Limited certain specified landholdings. The defenders challenged the authority of Gary and Steven Gillespie to raise the action in the name of the company. Accordingly Steven Gillespie by notice dated 6 October 2008 called a meeting of the pursuer's board of directors to ratify the raising of the action. The meeting was held on 9 October 2008; all four brothers attended the meeting in their capacity as directors.

[5] There was a measure of agreement concerning the events at the directors' meeting reflected in a Joint Minute. The relevant provisions of the Joint Minute are as follows:

"9. Graham Gillespie asked Steven Gillespie and Gary Gillespie who was going to meet the court expenses incurred by the Company in the two actions which have been raised in name of the Company. Steven Gillespie stated that the meeting would not discuss that subject.

10. Steven Gillespie proposed that the ratification of the present action be approved.

11. Steven Gillespie and Gary Gillespie each cast a vote in favour of that resolution.

12. Graham Gillespie and Alan Gillespie each cast a vote against the resolution.

13. Each set of minutes [prepared by the opposing parties] records that Steven Gillespie and Gary Gillespie contended that Graham Gillespie's vote fell to be disregarded on grounds of conflict of interest.

13(sic) Graham Gillespie and Alan Gillespie objected that, on the same grounds, the votes of Steven Gillespie and Gary Gillespie should also be disregarded, and that the only valid vote which had been cast was that of Alan Gillespie. That objection is also recorded in each set of minutes".

The pursuer avers that the first defender was disqualified from voting at the meeting by reason of his conflict of interest in the subject matter of the resolution but neither Steven nor Gary Gillespie were so disqualified because, in their case, there was no realistic conflict of interest in terms of the pursuer's Articles of Association.

[6] Before the Lord Ordinary the defenders challenged the relevancy of the averments in the action and sought its dismissal on the grounds that the purported ratification at the board meeting was ineffective because Steven and Gary Gillespie should not have voted, as they had placed themselves in a position where their personal interests were in conflict with their duty to the pursuer. The first plea-in-law for the defenders was in the following terms:

"The action, being brought in the pursuer's name without proper corporate authority, should be dismissed".

On 25 October 2010 the Lord Ordinary repelled that plea-in-law.

Submissions on behalf of the reclaimers

[7] Senior counsel for the reclaimers submitted that the Lord Ordinary had erred in determining the sole issue before him, namely whether Steven Gillespie and Gary Gillespie were excluded from voting at the board meeting on 9 October 2008 because of a conflict of interest. The Lord Ordinary had referred to the terms of Regulation 94 of Table A of the Companies (Tables A to F) Regulations 1985 as amended which provides, so far as material:

"Save as otherwise provided by the Articles, a director shall not vote at a meeting of directors....on any resolution concerning a matter in which he has, directly or indirectly, an interest or duty which is material and which conflicts or may conflict with the interests of the company....".

That regulation applied to the respondent. Steven Gillespie and Gary Gillespie did not dispute that a conflict of interest would have precluded them from voting but denied that there was such a conflict. Section 175(1) of the Companies Act 2006 codifies the conflict of interest rule as follows:

"A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts or possibly may conflict with the interests of the company".

Section 175(4) provides that the duty is not infringed:

"(a) if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest; or
(b) if the matter has been authorised by the directors".

Mr Currie advised us that the parties were agreed that, on the authorities, the relevant test was whether there was a "real sensible possibility of conflict". It was also common ground that the ratification by the pursuer of the decision by Steven and Gary Gillespie to raise the action had relieved these directors of any personal liability for the expenses of raising the action. He submitted that the Lord Ordinary had erred in concluding that Steven Gillespie and Gary Gillespie had no real prospect of avoiding personal liability for funding the action because of the respondent's known lack of funds. (Lord Ordinary's Opinion para [22]). The Lord Ordinary had advanced four reasons justifying his conclusion but when these were properly analysed none of them was valid. The first reason advanced by the Lord Ordinary was that the solicitors, who had been instructed on behalf of the respondent by Steven and Gary Gillespie would require funding. Moreover, the Lord Ordinary had considered that the reclaimers would be able to obtain awards of expenses for which Steven and Gary Gillespie would be personally liable. Counsel submitted that whatever arrangements had been reached between the solicitors instructed on behalf of the company and Steven and Gary Gillespie, there was no basis for concluding that the court could make an award of expenses in favour of the reclaimers against Steven and Gary Gillespie once their actings had been ratified (Caledonian Produce (Holdings) Ltd v Price Waterhouse 1993 SC 181). The second reason mentioned by the Lord Ordinary was that Steven and Gary Gillespie faced potential liability as domini litis whether or not the action was ratified. It was submitted that that reason was also erroneous. There could be no question that the respondents had the real interest in the action because the allegation was that the reclaimers had appropriated property belonging to the respondent. At best for Steven and Gary Gillespie they had an interest in the outcome of the litigation. That was insufficient to justify the conclusion that they were domini litis. (McCuaig v McCuaig 1909 SC 355; Cairns v McGregor 1931 SC 84; and Caledonian Produce (Holdings) Ltd v Price Waterhouse (op.cit.)). The third reason specified by the Lord Ordinary was that the reclaimers would have been able to protect themselves by seeking caution for expenses under section 726 of the Companies Act 1985 as they had done. Counsel submitted that this reason was also ill-founded. It was a matter of agreement that Steven and Gary Gillespie had refused to discuss the question of indemnity for expenses at the board meeting called to ratify their decision to raise the present proceedings in the name of the company. By the date of the board meeting no order for caution had been sought or made and it was not until January 2009 that such an order was made. The effect of the ratification of the actions of Steven and Gary Gillespie was that they were absolved from personal liability for expenses already incurred. The possibility that caution might be ordered at some future date did not affect the question of the conflict of interest between them and the company at the date of the meeting. The final reason advanced by the Lord Ordinary was that, as directors of a company which was of borderline solvency, Steven and Gary Gillespie owed the respondent a duty to have regard to the interests of its creditors and not to act in a way which would put such creditors in a worse position than in a liquidation. The instruction and pursuit of an uncertain litigation in the respondent's name was prima facie a breach of duty. If the directors instructing the action did not meet the respondent's liabilities in relation to the litigation, the reclaimers or another creditor could have the company wound up and the liquidator could pursue these directors for breach of duty. In addition, there would be the prospect of disqualification proceedings. Mr Currie submitted that this reason was also without foundation. It presupposed that a creditor or the reclaimers, assuming an award of expenses was made in their favour, would fund the appointment of a liquidator and any necessary litigation by the liquidator to recover the expenses from Steven and Gary Gillespie. Such potential liability did not put these directors in the same position as if there had been no ratification and the Lord Ordinary had erred in concluding that they were.

Submissions on behalf of the respondent

[8] Senior counsel for the respondent submitted that if there had been a directors' meeting prior to the raising of the action, Thomas Gillespie would have been disqualified from participating in that meeting because the action involved his alleged misappropriation of company property. Mr Sellar acknowledged that if the respondent had had any assets, there would have been a conflict of interest between the respondent and Steven and Gary Gillespie. However, the speciality of this case was that the company had no assets. It was a shell. It had four shareholders each of whom was a director. In these circumstances he submitted that the Lord Ordinary had applied the correct test to the most unusual circumstances which prevailed in this case. The Lord Ordinary's decision had applied the same result in practice as would have been achieved by Steven and Gary Gillespie granting the indemnity sought at the directors' meeting. The Lord Ordinary had reached the correct decision for sound reasons. In the first place, if there had been no ratification of the decision to litigate, Steven and Gary Gillespie would have been liable for the expenses of the action because they would be obliged to indemnify the solicitors instructed by them against any such award. In considering the effect of ratification one had to have regard to the practical reality of the situation. The respondent had no money and in those circumstances the respondent's solicitors would seek funding from Steven and Gary Gillespie as the true client. That liability was not affected by the ratification by the respondent of the decision to litigate. Secondly, the Lord Ordinary was correct to conclude that the two directors were domini litis. Steven and Gary Gillespie are two of four shareholders. One of the remaining two shareholders is the first reclaimer. The company is a shell and is not carrying on activity apart from the present litigation. In these circumstances the whole interest in the subject matter of the litigation remains with Steven and Gary Gillespie, who have the power to compromise the action. The decision in Caledonian Produce (Holdings) Ltd v Price Waterhouse was consistent with the Lord Ordinary's reasoning. By the date of the meeting the company was insolvent and an award of expenses had already been incurred. In these circumstances it would be strange if the two directors responsible for the litigation were not liable for the expenses of the insolvent company. Thirdly, the Lord Ordinary was correct to conclude that, in the circumstances of this case, Steven and Gary Gillespie owed a duty to the respondent to have regard to the interests of the respondent's creditors. At the date of the meeting the company was insolvent. The practical reality was that the costs of litigation compounded the situation. The two directors who had instructed the litigation were men of substance. It was inconceivable that a liquidator would not seek reimbursement from them of any liability for expenses incurred by the respondent as a result of the litigation. Moreover, it was fanciful to suggest that the reclaimers would not seek recovery of their expenses from Steven and Gary Gillespie directly or, if necessary, indirectly through a liquidator. Having regard to the history of litigation between family members to which the Lord Ordinary alluded, it was inconceivable that the first reclaimer would not seek recovery of his expenses from his brothers. In addition, Mr Sellar submitted that Steven and Gary Gillespie would not only be foolish to fail to meet any liability of the respondents for expenses; they would be left with no practical option because of the threat of disqualification as directors. Finally, Mr Sellar advised us that he did not place much reliance upon the reasoning of the Lord Ordinary based upon the ability of the reclaimers to protect themselves by seeking caution for expenses under section 726 of the Companies Act 1985. Nevertheless, it was important to bear in mind that the only source of funding to meet any award of expenses against the company was Steven and Gary Gillespie. Although no order for caution had been sought or granted prior to the directors' meeting, it was almost inevitable in practice that such an application would be made. An order for caution was subsequently made and funds were provided by the two directors who had initiated the proceedings. From a realistic point of view it was reasonable to assume that there would be an award of caution and that these two directors would provide the funding if they wished the action to continue. The whole point of ratification had been to ensure that the action would continue.

Discussion

[9] At the outset we would observe that the actual or potential interest alleged against Steven and Gary Gillespie, namely one extending to certain expenses of the action commenced at their instigation, is essentially no different from the actual or potential interest which they would have had if ratification of the raising of the action had been sought ab ante rather than shortly after the proceedings were commenced. Either way they would, as individuals, be exposed to whatever liability in expenses was not the subject of ratification by the company, and to our mind it is hard to see why the precise date of ratification should materially affect the nature or extent of that exposure. As senior counsel for the reclaimers readily accepted, it is sometimes unavoidable that urgent protective litigation, for example where there is a need to seek and obtain a court order to preserve fragile or disposable assets without delay, must be raised in advance of the date when an affected company, partnership or trust might, in accordance with its own standard procedures and timescales, authorise the raising of proceedings on its own account. In such circumstances the position of directors, partners or trustees requiring to institute urgent protective measures for the benefit of their company, firm or trust is in our view practically indistinguishable from the position of the same directors, partners or trustees where the relevant measures can competently and timeously be ratified in advance of proceedings being raised.

[10] For these reasons it is in our view strongly arguable, especially where there was acknowledged to be no authority directly in point, that the so-called interest of directors instituting urgent protective measures for the benefit of a company whom they represent falls outwith the scope of any "interest" capable of disqualifying them from voting at a relevant meeting in terms of Regulation 94 of Table A of the 1985 Regulations. Not only does the alleged interest in such a case not touch on the substantive merits of the litigation at all, nor on any relevant transaction, benefit or advantage, but as regards expenses there is arguably no material interest or duty involved where (a) any liability would be contingent on lack of success or unreasonable conduct at some stage of the proceedings; (b) it might in any event be regarded as de minimis by comparison with a substantive claim of real value; and (c) essentially the same issues would have arisen had it been practicable to convene the relevant meeting in advance of proceedings being raised. To hold otherwise might have the unfortunate result of disabling directors, at whatever date, from promoting any litigation on the company's behalf where the only available alternative would be to commence proceedings at their own instance and, as regards expenses, at their own risk.

[11] In answer to questions from the Bench, however, senior counsel for the respondent resolutely declined to take advantage of any such argument. It formed, he said, no part of the respondent's case in these proceedings, and so far as he was concerned the outcome of the reclaiming motion must turn simply on the correctness or otherwise of the four reasons which the Lord Ordinary had given for deciding the matter in the respondent's favour. On that restricted basis we consider the issue in this case to be a narrow one. There was no dispute that Steven and Gary Gillespie had instructed the raising of the present action in the name of the respondent without its authority. The question for determination is whether their actions had been validly ratified by the resolution of the board of directors on 9 October 2008 in circumstances where one of the four directors, who was not excluded from voting by reason of a conflict of interest, had voted against the resolution and the only votes cast in favour of the resolution had been those of Steven and Gary Gillespie. It is a matter of agreement that the Lord Ordinary correctly identified the relevant legal test as being whether, in the light of the facts and circumstances averred by the respondent, the reasonable man would have thought that in relation to the proposed ratification there was a "real sensible possibility of conflict" between the personal interests of Steven and Gary Gillespie and the fiduciary duty owed by them to the company (Boardman v Phipps [1967] 2 AC 46; Bhullar v Bhullar [2003] 2 BCLC 241). The Lord Ordinary answered that question in the negative and his reasoning for doing so is set out in paragraphs [22] and [23] of his Opinion to the following effect:

"[22] ....as presented in the pursuers' (sic) averments, I am satisfied that Eastford's known lack of any funds meant that Mr Steven Gillespie and Mr Gary Gillespie had no real prospect of avoiding personal liability for funding the action. The solicitors whom they instructed on Eastford's behalf would look to them for funding and the defenders would be able to obtain awards of expenses for which they would be personally liable. They faced potential liability as domini litis whether or not the action was ratified. The defenders would have been able to protect themselves by seeking caution for expenses under section 726 of the Companies Act 1985 as they have done. Further, as directors of a company which was of borderline solvency, they owed Eastford a duty to have regard to the interests of its creditors and in particular not to act in a way which would put such creditors in a worse position than in a liquidation....The instruction and pursuit of an uncertain litigation in the name of a company which had no assets was prima facie a breach of that duty as the company would incur actual and potential liabilities at the risk of its creditors, thereby created, namely its solicitors and the defenders. If the directors instructing the action did not meet Eastford's liabilities in relation to the litigation, the defenders or another creditor could have the company wound up. The liquidator would then be in a position to pursue them for damages for breach of duty and....there would also be a prospect of disqualification proceedings.

[23] I recognise that, if Eastford had had funds to finance the action, the directors who initiated the action would have had a personal interest in the ratification of their acts which might conflict with the interests of the company; but, on the pursuers' (sic) averments, those are not the circumstances of this case".

As is clear from the above passage in the Lord Ordinary's opinion and from the submissions made on behalf of both parties, if one treats the prospect of disqualification proceedings as one consequence of a breach by the directors of their fiduciary duties to the company, there are essentially four reasons advanced by the Lord Ordinary in support of his conclusion that Steven and Gary Gillespie had no real prospect of avoiding personal liability for funding the action. If that conclusion is well founded, there can be no doubt that the Lord Ordinary was entitled to reach the view that there was no real possibility of a conflict of interest between these two directors and the company. Before they can successfully undermine the conclusion of the Lord Ordinary the reclaimers must satisfy us that each of the reasons given by him in support of that conclusion was unsound. In other words, if any of his reasons is well founded the reclaimers must fail.

[12] The first reason advanced by the Lord Ordinary was that "[the] solicitors whom [Gary and Steven Gillespie] instructed on Eastford's behalf would look to them for funding and the defenders would be able to obtain awards of expenses for which they would be personally liable". There are two aspects to this reason, the first of which is the entitlement of the solicitors to recover the costs of pursuing the action from the two directors who instructed them to pursue the action on behalf of the company. We agree with this part of the Lord Ordinary's reasoning. It is inconceivable that solicitors would not secure funding for the litigation from Steven and Gary Gillespie, even after the decision to litigate had been ratified by the company. The company in this case has no assets. A prudent solicitor would wish to ensure that the fees and outlays in connection with the litigation were guaranteed by the two directors from whom they received instructions. However, the second aspect of this reason is that the reclaimers would be able to obtain awards of expenses for which Steven and Gary Gillespie would be personally liable. While this would undoubtedly be the case if the company had not ratified their decision to initiate proceedings, we are not persuaded that, following ratification by the company of that decision, any award of expenses against the company in favour of the reclaimers would be enforceable against Steven and Gary Gillespie personally. Following ratification these directors are in no different position from the directors of any company. In Caledonian Produce (Holdings) Ltd v Price Waterhouse (op.cit.) four individuals were authorised by the court to raise an action in the name of a company in liquidation, on condition that they found caution indemnifying the company and the liquidator personally inter alia against any liability in expenses incurred by the company or the liquidator in the proposed litigation. The defenders in that case sought caution for their expenses. The pursuers sought to draw a distinction between the position of directors of a company and the individuals in that case who had been authorised to litigate in the name of the company in liquidation. In rejecting that distinction Lord Penrose stated at page 187D:

"I have been unable to find any substance in the distinction. It is true that the directors are sometimes described as agents of the company. However, in relation to litigation their position is that of persons who give instructions for the litigation to be initiated and pursued. They have control of the litigation. If they so resolve, the litigation can be abandoned, settled or prosecuted to a conclusion. Without their active and direct participation, no litigation could be maintained at the instance of a limited company. Our practice does not require that they be conjoined as pursuers in litigation at the instance of the company and there is no basis in principle or practice for their being found directly liable in expenses to an opposing party".

We respectfully agree with that analysis, and insofar as the first reason advanced by the Lord Ordinary in this case might be construed as imputing personal liability for awards of expenses against the company to two of its directors, we would not regard it as soundly based.

[13] The second reason given by the Lord Ordinary was that the two directors "faced potential liability as domini litis whether or not the action was ratified". As Lord Justice Clerk Alness observed in Cairns v McGregor 1931 SC 84 "two ingredients are essential to the product of a dominus litis, viz., control of the suit and an interest in its subject-matter". (page 88). He also recognised that none of the many cases cited to the court dealt specifically with the kind of interest which was required to satisfy the second ingredient. He did, however, refer to the opinion of Lord Rutherfurd in Mathieson v Thomson (1853) 16D 19 at page 23 to the following effect:

"There may be some difficulty in defining exactly what is a dominus litis; but I confess that I very much agree with what has been laid down by your Lordship, and with the definition quoted from the civil law by Lord Ivory, that he is a party who has an interest in the subject matter of the suit; and, through that interest, a proper control over the proceedings in the action. Now it will not make a person liable in the expenses of an action that he instigated the suit, or told a man that he had a good cause of action, and that he would be a fool if he did not prosecute it, or though he promoted it by more substantial assistance. It will not make him liable in the expenses of the suit that, while he does both of these things, he shall have some ultimate consequent benefit in the issue of that suit. But when you go a step further, and find a party with a direct interest in the subject matter of the litigation, and through that interest master of the litigation itself, having the control and direction of the suit, with power to retard it, or push it on, or put an end to it altogether, then you have a proper character of dominus litis; and, though another name may be substituted, the party behind is answerable for the expenses".

Following that quotation Lord Justice Clerk Alness observed at page 89:

"The interest of the alleged dominus litis in the subject-matter of the suit, in the sense of that passage, must be so direct and dominant as to yield control of the suit. It would seem to follow that an inconsiderable interest would not serve".

Mr Sellar sought to rely upon these observations and submitted that in the present

case Steven and Gary Gillespie had the requisite interest and control because they

were two of four directors, one of whom was disqualified by reason of being a

defender in the present action. Moreover, the whole interest in the litigation rested

with these two directors. The company was a shell and was not carrying on any

activity apart from this litigation. These two directors had power to compromise the action and were in control of the litigation. While we agree with the submission to

the extent that these two directors have to date exercised control over the litigation

and as a matter of fact have power to compromise it, we are not persuaded that they

have the requisite interest to qualify them as domini litis. In McCuaig v McCuaig

1909 SC 355 Lord President Dunedin stated at page 357:

"But it must be shewn that the party who is to be brought into this suit has the true interest in the cause, and by true interest I mean the entire interest, using that term not in an absolute sense but as denoting the whole interest for all practical purposes".

Applying that test it cannot be said that the two directors have the whole interest in the litigation for all practical purposes. Even although it is a shell company, the respondent itself has the primary interest in recovering assets which have allegedly been misappropriated. Through the company its shareholders, who coincidentally are the four directors each holding 25% of the shareholding, have a secondary or derivative interest in the recovery by the company of its assets, but of that interest Steven and Gary Gillespie between them own only half. Moreover the designation of the two directors as domini litis fails to recognise the specialty of company law that directors always have control of litigation involving a company. In these circumstances, as was recognised by Lord Penrose in Caledonian Produce (Holdings) Ltd v Price

Waterhouse (op.cit), there is no justification in principle or practice for rendering

them directly liable in expenses to an opposing party. For the same reason we do not consider that control of litigation as a director is sufficient to render the director liable as a dominus litis. Nor do we consider it to be relevant that the respondent in this case is a shell company. There are many situations in which companies with little or no assets might initiate court proceedings. In such circumstances it is unnecessary to declare the directors to be domini litis because the court is able to recognise the separate legal personality of the company, while at the same time in appropriate cases affording protection to opposing parties by requiring the company to find caution for expenses. In the present case there does not appear to us to be any justification for departing from the general rule that directors should not be regarded as domini litis. We have accordingly reached the conclusion that the second reason advanced by the Lord Ordinary is also invalid.

[14] The third reason advanced by the Lord Ordinary in support of his conclusion was that the reclaimers "would have been able to protect themselves by seeking caution for expenses under section 726 of the Companies Act 1985 as they have done". The relevant provision is contained in section 726(2) which is in the following terms:

"Where in Scotland a limited company is pursuer in an action or other legal proceeding, the court having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the defender's expenses if successful in his defence, order the company to find caution and sist the proceedings until caution is found".

It is clear from the terms of that provision that the power to order caution is discretionary. Moreover, although an order for caution was ultimately made, it is relevant to have regard to the history of events. At the meeting of the board of directors held on 9 October 2008 the issue of the responsibility for the company's costs was raised. Paragraph 9 of the Joint Minute is reproduced above (para [5]) from which it is clear that at the meeting Steven and Gary Gillespie refused to address the concerns which were ultimately resolved on 9 January 2009 when the Court ordained the respondent to find caution for expenses in the sum of £25,000 within 21 days from that date. The practical effect of the order for caution was that, as the company had no assets, the litigation could not proceed without Steven and Gary Gillespie lodging caution in that sum as they were the only two directors who supported the litigation. We would observe in passing that, had Steven and Gary Gillespie given the appropriate assurance at the directors' meeting, the debate before the Lord Ordinary and before this court would probably have been unnecessary. Moreover when the reclaimers sought an order for caution for expenses in terms of section 726(2) of the Companies Act 1985 the motion was opposed by the respondent. We are not persuaded that the mere fact that the reclaimers could seek a discretionary remedy in the form of an award of caution for expenses is sufficient reason for concluding that Steven and Gary Gillespie had no real prospect of avoiding "personal liability for funding the action", if by that phrase the Lord Ordinary meant to include a liability to pay any sum awarded as expenses to the reclaimers. Clearly the respondent did not consider that to be the case as it opposed the motion seeking caution. We also note that in the hearing before this court Mr Sellar did not place much reliance upon this particular reason advanced by the Lord Ordinary. We are not persuaded that it was a sound reason justifying the conclusion reached by the Lord Ordinary.

[15] The final reason advanced by the Lord Ordinary was that, as directors of a company of borderline solvency, Steven and Gary Gillespie owed the company a duty to have regard to the interests of its creditors and not to act in a way which would place such creditors in a worse position than in a liquidation. Allied to this reason was the consequence that if these directors did not meet or otherwise procure discharge of any liabilities incurred by the company in relation to the litigation, the reclaimers could have the company wound up in respect of the award of expenses in their favour. This would result in the entitlement of the liquidator to pursue Steven and Gary Gillespie for damages and they would also run the risk of facing proceedings for disqualification as directors. From the authorities relied upon by the Lord Ordinary it is clear that Steven and Gary Gillespie owed the duty to the respondent specified by the Lord Ordinary. It was not in dispute that the respondent currently had no assets and would not have funds to meet any award of expenses in favour of the reclaimers if it were unsuccessful in the present litigation. If Steven and Gary Gillespie did not meet these expenses the company could be wound up. Moreover, having regard to the history of litigation within the members of the Gillespie family, we are satisfied that the risk of liquidation in that situation would be a real one. In that event Steven and Gary Gillespie would be exposed to potential claims for damages by the liquidator for breach of their duty as directors and they would also risk proceedings for disqualification as a director. Each of them appears to have other substantial interests and we are satisfied that the Lord Ordinary was correct when he concluded that they ultimately had no real prospect of avoiding personal liability for funding the action at the instance of the respondent, including meeting any award of expenses which might be made in favour of the reclaimers. While we have concluded that the other three reasons advanced by the Lord Ordinary are without substance, it seems to us that this reason alone was sufficient to entitle him to reach the conclusion which he did.
[16] In the foregoing circumstances we shall refuse the reclaiming motion.