Scottish Borders Council relied on external legal advice provided by the offshore law firm acting for the owners of Lowood Estate, near Melrose before agreeing to buy the property using £9.6 million of taxpayers' money.
It has been confirmed the local authority did not seek independent opinions or arrange for their own legal searches as to the status and solvency of the two Cayman Islands companies they were negotiating with in a bid to buy Lowood for development purposes.
Instead, under a clause of the contract of purchase Grand Cayman-based solicitors Carey Olsen who were acting for Lowood Estates Ltd and Genesis Trust & Corporate Services Ltd, both also incorporated on the Caribbean island, carried out searches of local company registers then transmitted their Opinions on the two entities to SBC.
Once the deal was completed the council paid the law firm £3,100 for the work it had done.
All of this information has been uncovered via Freedom of Information [FOI] following a request for "information contained in all correspondence – reports, emails, minutes and any other paperwork – relating to the legal advice Scottish Borders Council sought and received from in-house lawyers and/or from private law firms during negotiations and prior to and following the conclusion of the purchase of Lowood Estate".
In its original response SBC claimed "Prior to the purchase of Lowood Estate, SBC sought external legal advice concerning the legal status of the owners of the Estate. Where a company owns property, it is standard conveyancing practice for the purchaser to check the status of the selling company. Where the seller is a UK registered company, this is done through a search at Companies House. In this case, the property was owned by two companies registered abroad, and accordingly advice was sought from solicitors based in the appropriate jurisdiction."
At this stage the council did not refer to the fact that advice had come from the sellers' law agent.
SBC also supplied as part of their FOI response copies of two Opinions dated December 5th 2018 relating to the owners of Lowood. Each 14-page document makes it clear the Opinion "is given only on the laws of the Cayman Islands". And Carey Olsen go on to state: " We do not give any opinion on the commercial merits of any transaction contemplated or entered into under or pursuant to the Documents."
And the Opinion goes on to make clear: "This Opinion (and any obligations arising out of or in connection with it) is given on the basis that it shall be governed by and construed in accordance with the laws of the Cayman Islands. By relying on the opinions set out in this Opinion the addressee(s) hereby irrevocably agree(s) that the courts of the Cayman Islands are to have exclusive jurisdiction to settle any disputes which may arise in connection with this Opinion."
Following release of this information Scottish Borders Council was contacted and asked "The documents attached to your response are in relation to legal opinions given by Carey Olsen, lawyers based in Grand Cayman. I also requested copies of “legal advice sought” by the council, so would respectfully ask again for information contained in documents generated by SBC in its requests for the paperwork it received from Carey Olsen. In other words, what was specifically asked for from the Cayman-based lawyers?"
This time the Borders local authority wrote: "Our original response states that SBC sought external advice on the legal status of the Cayman island sellers. We did not however, seek this advice directly, but rather it was a condition of our contract with the sellers that this advice be provided. SBC were not involved in the request for the opinions, which were received by the seller’s solicitors and forwarded on to us in terms of the contract of purchase."
An extract from the contract of purchase, attached to the final reply, reads: "Legal Opinions – The seller shall provide to the purchaser prior to completion, legal opinions from Carey Olsen in respect of [1] Lowood Estates Ltd. and [2] Genesis Trust & Corporate Services Ltd both companies registered under the laws of the Cayman Islands and each having their registered office formerly at Genesis Building, Grand Cayman, and now at Elgin Court, PO Box 448 Elgin Avenue, George Town, Grand Cayman, and in each case said opinion shall disclose nothing prejudicial to the seller’s ability to enter into the Missives or deliver the Disposition in accordance with clause 10.1. The cost of the opinion shall be the responsibility of the Purchaser in accordance with Clause 24."
A legal expert who was shown the FOI responses commented: "“Are you honestly telling me the council did not commission this legal advice - that the sellers did, and they made the Council pay for it?
“If the legal advice happened to be flawed SBC couldn't do
anything about it, as the council is not the client in terms of who commissioned the
legal advice - (they have already admitted to this when they revealed they had
not sought the Opinions directly)”
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