Scottish Sheriff Court Decisions

SHERIFFDOM OF GLASGOW AND STRATHKELVIN AT GLASGOW

 

2014SCGLA46

A801/13

JUDGMENT

of

SHERIFF PRINCIPAL C A L SCOTT, QC

in the cause

ELB Securities Ltd

Pursuers

against

 

Alan Love & Prestwick Hotels Ltd

Defenders

                                                                        

 

 

Glasgow, 20 August 2014.

 

The sheriff principal, having resumed consideration of the appeal, allows same and recalls the sheriff’s interlocutor dated 4 April 2014; sustains the pursuers’ first, second, fourth and fifth pleas in law and repels the defenders’ pleas in law under exception of their sixth plea; (one) finds and declares that the company Prestwick Hotels Ltd (SC023305) was dissolved on 14 June 2013; (two) finds and declares that the lease between Carole Paul Fox-Robertson and Alison Mary Chisholm as executors of the late Peter Graham Fox and Prestwick Hotels Ltd (SC023305) of ALL and WHOLE those premises comprising the fifth floor at 166 Buchanan Street, Glasgow and registered in the Books of Council and Session on 12 October 2005 is at an end and that the parties thereto are no longer bound thereby, and that the pursuers are entitled to enter upon possession of the said premises and to dispose thereof at their pleasure; and (three) ordains the defenders’ servants, employees, tenants and others summarily to flit and remove themselves and their whole goods, gear and other effects from said fifth floor at 166 Buchanan Street, Glasgow and to leave same void and redd and that under pain of ejection and grants warrant to officers of court to eject the defenders, their servants, employees, tenants and others with their goods, gear and whole possessions from the said subjects; finds the defenders liable to the pursuers in the expenses of the debate on 17 February 2014 and the appeal; allows an account thereof to be given in and remits same, when lodged, to the auditor of court to tax and to report thereon; quoad ultra remits to the sheriff to determine further procedure in relation to the fourth crave of the writ.

 

 

 

 

 

NOTE:-

 

Introduction

[1]        This appeal concerns the construction to be placed upon the terms of section 1032(1) of the Companies Act 2006, in the particular circumstances of the case.  Section 1032(1) provides that:

 

“The general effect of an order by the court for restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register.”

 

[2]        The pursuers are landlords of fifth floor premises at 166 Buchanan Street, Glasgow.  The second defenders, Prestwick Hotels Ltd, (hereinafter referred to as “PHL”) were the tenants of those premises.  On 14 June 2013, PHL were dissolved. 

 

[3]        Section 1012 of the 2006 Act provides that when a company is dissolved, “…all property and rights whatsoever vested in or held on trust for the company immediately before its dissolution…” including leasehold property, are deemed to be bona vacantia.

 

[4]        In the present case, it fell to the Crown to decide whether its title to the lease should be disclaimed under section 1013 of the 2006 Act.  The Crown representative in relation to property in Scotland, the Queen’s and Lord Treasurer’s Remembrancer (“QLTR”) disclaimed the Crown’s whole right and title in and to PHL’s interest in the lease by Notice dated 15 July 2013. 

 

[5]        Section 1020 deals with the effect of such a disclaimer.  Its terms are as follows:

 

“(1) The Crown’s disclaimer operates to determine, as from the date of the disclaimer, the rights, interests and liabilities of the company, and the property of the company, in or in respect of the property disclaimed.

(2)  It does not (except so far as is necessary for the purpose of releasing the company and its property from liability) affect the rights or liabilities of any other person.” 

For the purposes of the appeal, it was agreed that the use of the word “determine” in sub-section (1) supra had the same effect as if the word “terminate” had been used.

 

[6]        The foregoing statutory provision having served to terminate the lease, the pursuers (qua landlords) sought to repossess the premises and pursued that aim via the present proceedings, the initial writ being warranted on 13 August 2013. 

 

[7]        The first defender is a director of PHL.  On learning that the company had been the subject of dissolution, he took steps to restore it to the register of companies.  By interlocutor dated 3 October 2013, the sheriff at Hamilton ordered restoration.

 

[8]        Accordingly, in the context of the present action, the pursuers, at debate before the sheriff, argued that the defences were irrelevant owing to the statutory termination of the lease under section 1020 supra and that decree as craved (under exception of crave 4) should be pronounced.  In contrast, the defenders contended that given the terms of section 1032(1) supra all things had reverted to the status quo as it prevailed pre-dissolution, that the action was irrelevant and that it should, therefore, be dismissed.

 

Pursuers’ submissions

[9]        In pronouncing his interlocutor of 4 April 2014, the sheriff agreed with the defenders’ submissions and dismissed the action.  Mr Young, solicitor for the pursuers, maintained that the sheriff’s approach had been wrong.  As a matter of general policy, he submitted that were the defenders’ arguments to prevail and were the restoration of PHL, in effect, to overrule the Notice of Disclaimer, uncertainty or absurdity would arise.

 

[10]      Under reference to the sheriff’s note, Mr Young challenged the absence of any judicial reconciliation as between the provisions of section 1020 and section 1032.  The following authorities were referred to:

 

Allied Dunbar Assurance plc v Fowle & Others [1994] BCC 422

Hindcastle Ltd v Barbara Attenborough Associates Ltd & Others [1996] 1 All ER 737

The Advocate General for Scotland, Petitioner [2010] CSOH 82

Beauchamp Pizza Ltd v Coventry City Council [2010] EWHC 926

RVB Investments Ltd v Alasdair Roderick Bibby (Case No ITF00604), 25 January 2013

Reference was also made to section 178(4) of the Insolvency Act 1986 and to Bennion on Statutory Interpretation (Twelfth Edition).

 

[11]      With regard to the RVB & Hindcastle cases, Mr Young accepted that they had been distinguished by the sheriff (see paragraph [48] in the sheriff’s note) and also accepted that neither of those cases served to provide specific guidance as to resolution of the issue under consideration in the present appeal.  Mr Young characterised the Allied Dunbar case as being the only authority directly in point.  It concerned the earlier provisions of the Companies Act 1985.  However, whilst the case dealt with the effect of a company’s revival after dissolution in so far as it concerned the rights and liabilities of sureties, there was, observed Mr Young, reliance upon the earlier case of Stacey v Hill [1901] 1 KB 660 and that case had subsequently been overruled in Hindcastle.

 

[12]      Mr Young highlighted the provisions of sections 1017 and 1021 of the 2006 Act.  Those sections explicitly empowered the court to make an order in favour of a person claiming an interest in disclaimed property or where that person was under a liability in respect of such disclaimed property not discharged by the disclaimer.  As I understood his submission, Mr Young’s purpose in referring to the section 1017 and 1021 provisions was to highlight the fact that the construction placed upon section 1032 by the defenders had to be regarded as incorrect when other statutory provisions within the Act were considered.

 

[13]      In other words, if section 1032 truly meant that all matters reverted to the status quo pre-dissolution, provisions such as those contained within sections 1017 and 1021 would be rendered meaningless.  Mr Young queried why Parliament would have seen fit to empower the court to consider applications for the vesting of disclaimed property and, if so advised, to grant such applications when, if the defenders’ interpretation were to prevail, section 1032 might thereafter be used to “drive a coach and horses” through such orders of court.

 

[14]      It was also suggested by Mr Young that, with effect being given to the defenders’ construction of section 1032, the way was open for court orders to be undermined without any form of due process.  That feature was, he argued, enhanced by the category of persons who might apply for restoration of a limited company to the register.  A wide range of such individuals was involved and the time limit for doing so was 6 years.

 

[15]      Any contention that the present pursuers ought to have entered appearance and opposed the petition for restoration of PHL at Hamilton Sheriff Court was rejected by Mr Young.  He submitted that sheriff courts the length and breadth of Scotland would require to be monitored for the appearance of any such restoration applications.  He agreed with the proposition that the position adopted by the pursuers in the present case did not necessarily preclude the act of restoration to the register of companies.

 

[16]      Mr Young also contrasted the detail of the statutory provisions as between ie section 1021, which provides for the property etc of a dissolved company to be deemed to be bona vacantia, and the situation where there has been a disclaimer.  In section 1021, it is explicitly stated that section 1012(1) “…has effect subject to the possible restoration of the company to the register…”  That sort of caveat was not to be found where there had been a disclaimer.

 

[17]      Various passages from the twelfth edition of Bennion on Statutory Interpretation were referred to with a view to aiding the court’s approach to construction of the provisions in question.  In particular, Mr Young founded upon the concepts of knowability and predictability discussed at pages 732 and 733.  Mr Young highlighted the fact that a construction avoiding an absurd result was generally favoured by the courts and that “absurdity” included “…virtually any result which is unworkable or impracticable, inconvenient, anomalous or illogical, futile or pointless, artificial, or productive of a disproportionate counter-mischief.”  (See page 869). 

 

[18]      The need to construe statutory provisions as a whole was also submitted as being an important consideration and under reference to page 1031 in Bennion, Mr Young stressed that the court must endeavour to attribute significance to every word of an enactment.  “It is presumed that if a word or phrase appears, it was put there for a purpose and must not be disregarded.”  Moreover, in dealing with conflicting statements within one Act, Mr Young referred to passages within Bennion at pages 1037 and 1038.  There was, he submitted, a requirement where reconciliation was not possible to “…determine which is the leading provision and which the subordinate provision, and which must give way to the other.”  However, under reference to page 1038 in particular, he maintained that special provisions in an Act must override general provisions and founded upon the maxim generalibus specialia derogant.

 

[19]      Accordingly, in summary, Mr Young submitted that the sheriff had failed to take account of the ramifications of the 6 year application period.  The sheriff’s decision had, in effect, disregarded the explicit terms of section 1020.  The sheriff had also erred in taking account of where any “advantage” may or may not lie.  That was, Mr Young maintained, irrelevant when it came to a proper construction of the statutory provisions.  Mr Young invited the court to allow the appeal, to sustain pleas in law 1, 2, 4 and 5 for the pursuers, to remit to the sheriff in respect of the fourth crave in the writ and to award the expenses of the debate and the appeal in favour of the pursuers.

 

Defenders’ submissions

[20]      In reply, Mr Mair for the defenders, founded upon the discrete order made by the sheriff at Hamilton.  That order stated that the company had been restored to the same position as if it had not been struck off.  Mr Mair submitted that detailed consideration of the 2006 Act provisions regarding disclaimer, vesting orders, etc was unnecessary.  He argued that the court might properly restrict its gaze to the terms of the Hamilton interlocutor.

 

[21]      Mr Mair contended that the authorities cited in the course of argument invariably dealt with companies afflicted by insolvency.  That, he suggested, was not the case as far as PHL were concerned.  In securing restoration to the register, there had been no attempt on the part of the company to “avoid anything”.  The petition for restoration was legitimately presented to the court regardless of the existence of the lease.  Mr Mair highlighted the fact that, prior to the dissolution of PHL, the pursuers, in terms of the lease, had no entitlement to the payment of rent.

 

[22]      Reference was made to paragraph [52] in the sheriff’s note.  Mr Mair supported the sheriff’s approach and maintained that the provisions of section 1032(1) must be afforded general application.  As I understood his submission, were this court to determine that the sheriff had erred in dismissing the action, such a determination would place the court in abject conflict with the order made in Hamilton Sheriff Court.  The sheriff there had been well aware of the proceedings in Glasgow and yet had nevertheless seen fit to pronounce the order sought. 

 

[23]      Mr Mair adhered to the core proposition that consideration of the effect of the Crown’s disclaimer was irrelevant given that the company had subsequently been restored to the register.  The position might have been different had QLTR opposed restoration.  In respect of the authorities, Mr Mair invited the court to “consider their overall tone…”

 

[24]      In any event, he argued that section 1032(1) “meant what it said”.  The effect of that sub-section was that all matters reverted to the pre-dissolution status quo to the extent that bona vacantia no longer applied to the leased subjects and, accordingly, there could be no continuing foundation for the present action.  The sheriff had been correct to pronounce decree of dismissal.

 

Discussion and Decision

[25]      On the hypothesis that certainty is a desirable feature of any legal code (and that proposition was not challenged on behalf of the defenders) there can be little doubt that the argument in favour of what might be described as an unqualified reversion to the pre‑dissolution status quo is imbued with uncertainty.  Such uncertainty can be exposed by taking a straightforward example, utilising almost identical circumstances to those of the present case, but postulating the company’s restoration to the register after a passage of, say, 5 years.  (Section 1030(4) makes provision for restoration applications to be made within 6 years from the date of dissolution).

 

[26]      In such an example, after dissolution of the (tenant) company, the landlord might have recovered possession of the leased subjects and, of new, let those subjects to another tenant who, for 5 years or thereby, might meet its contractual obligations to the landlord including payment of the rent due.

 

[27]      If the defenders’ construction of section 1032(1) were correct, the consequence for the new bona fide tenant would be that they would cease to have any right, title or interest in and to the subjects they have occupied under a prima facie valid lease, for 5 years or thereby.  That sort of consequence would be a recipe for commercial chaos. 

 

[28]      It would be absurd to contemplate that, for a 6 year period, subjects such as those in the present case could be blighted by an indeterminate factor, ie whether at any stage during that 6 year period, any of the individuals listed at section 1029(2) might successfully procure restoration of the company to the register.  Therefore, it seems to me that the various characteristics set out in the passages cited from Bennion all favour the pursuers’ construction of section 1032(1).

 

[29]      As Bennion also suggests, the statutory provisions must be read as a whole.  On that point, I found Mr Young’s submissions to be compelling.  For section 1032(1) to be construed such that it gives rise to an unqualified reversion to the status quo, one would require to ignore or treat as pro non scripto the preceding sections 1021 and 1022 along with the provisions of the succeeding section 1034.  In this regard the maxim generalibus specialia derogant must, in my view, apply.

 

[30]      In any event, it is important not to overlook what section 1032(1) actually says and to attribute meaning to the full extent of its wording.  In gremio of the sub-section itself is to be found a declaration as to “The general effect of an order by the court for restoration to the register…”  That declaration must, in my opinion, be construed as being entirely without prejudice to the manner in which such an order creates an interface with the more specific provisions in chapter 2 of the Act. 

 

[31]      The property of a dissolved company is deemed to be bona vacantia (section 1012(1)).  That provision is, indeed, expressly subject to the possible restoration of the company to the register.  However, as Mr Young submitted, once the property has been disclaimed by the Crown, such disclaimer is not qualified by any discrete statutory provision similar to that found in section 1012(2).  In the present case, the Crown’s disclaimer operated to terminate the lease.  (See section 1020(1)).

 

[32]      Accordingly, from 15 July 2013 onwards, the lease was at an end.  Where there is a specific, unambiguous statutory provision to that effect, I conclude that it would be wrong to superimpose a temporary or transitional state of affairs upon something which is prescribed as constituting a finality.  (For the avoidance of doubt, whilst the heading at section 1020 contains the word “General”, that word does not feature in the sub-section itself).

 

[33]      To place greater focus upon the frailty of the defenders’ argument, section 1034 is worthy of scrutiny.  That section deals with the effect of restoration to the register where property has vested as bona vacantia.  The person in whom any property or right is vested by way of its becoming bona vacantia is permitted to dispose of such property “…despite the fact that the company may be restored to the register…”  Any such restoration does not affect the disposition.  (Section 1034(2)).

 

[34]      Whilst there is provision for payment of compensation by the Crown, it seems to me that this section creates a major hurdle for the defenders’ argument.  If, as Mr Mair, unequivocally submitted, “everything reverts to the status quo” once the company has been restored to the register, the sort of disposition envisaged by section 1034 would, in effect, be rendered null and void.  Yet, the legislature has, here, specifically provided that such dispositions should prevail.  It is plain, therefore, that Mr Mair’s contention that restoration of a company retrospectively eliminates the deemed status of bona vacantia (ie regarding property etc) is unsound.

 

[35]      The authorities cited do not provide particular assistance in addressing the acute issue before this court.  The sheriff (at paragraph [50] in his note) concluded that the cases of Beauchamp and Allied Dunbar supported the defenders’ proposition that section 1032 had “universal effect”.  For my part, I would not be prepared to place such reliance upon those cases.  In general, they do not provide clear guidance as to how this court should construe the statutory provisions relevant to the circumstances of the present case.

 

[36]      Specifically, with regard to the Allied Dunbar case, contrary to what Mr Young had to say, I do not consider it to be an authority which is truly in point.  It was concerned, principally, with sureties’ liability although as the judgment of Garland J discloses, the arguments became further refined.  At page 430D, the court appears to have characterised the “central issue” as being whether a Crown disclaimer constituted a disposition.  That then led to consideration as to the meaning of disclaimer and of disposition.  The court summarised its conclusion at page 433.  It seems to me that its conclusion was arrived at without any reflection upon the difficulties which the “as you were” approach would carry with it.  Of course, Garland J also appears to have felt constrained to accept that the decision in Stacey v Hill was binding, whereas that decision was overruled by the House of Lords in Hindcastle, to which I shall turn shortly.

 

[37]      The circumstances of the Beauchamp case were quite different from the present case, involving consideration of the Companies legislation and the Licensing Act 2003.  Hindcastle was not referred to and, in any event, once again, the sort of issues pertinent to a determination in the present case were not, to my mind, properly considered.  Whilst I accept that section 1028(1) of the Companies Act 2006 was considered (cf. 1032(1)), I am of the view that the sort of approach to retrospective reassessment arrived at by HHJ Cooke (see paragraphs 26 and 28) ignores the qualification introduced by the use of the word “general”.  It is plain from the other provisions of the 2006 Act that there are specific instances where reassessment is precluded.  Not all acts occurring since the dissolution of a company fall to be reassessed on the footing that restoration to the register undermines their validity.

 

[38]      Nowhere in the Beauchamp case was consideration given to the terms of section 1015 of the 2006 Act although, at paragraph 17, mention was made of a conflict between the provisions of section 178 of the Insolvency Act 1986 and the provisions of the Environmental Protection Act 1990, all under reference to the case of Re Mineral Resources Limited (in liquidation), Environment Agency v Stout [1999] 1 All ER 746.

 

[39]      Moreover, the conclusion reached in Beauchamp was that no conflict existed between the provisions of the two statutes under consideration.  That position is to be contrasted with the present case wherein a conflict clearly exists between at least two statutory provisions to be found within the four walls of the same Act of Parliament.  Therefore, in Beauchamp, there was no need to resort to the various principles of statutory construction.  (See paragraph 32).  Whilst Beauchamp may be correctly decided on its own facts and circumstances, I am not prepared to give weight to the decision in the context of this appeal.

 

[40]      In contrast, I do attach weight to the observations made by Lord Nicholls of Birkenhead in Hindcastle, particularly at page 747 where he addressed a disclaimer situation involving only landlord and tenant:

 

“Disclaimer also operates to determine the tenant’s interest in the property, namely the lease.  Determination of a leasehold interest has the effect of accelerating the reversion expectant upon the determination of that estate.  The leasehold estate ceases to exist.  I can see no reason to question that this is the effect of disclaimer when the only parties involved are the landlord and the tenant.”

 

Lord Nicholls preceded the foregoing views by observing that if the tenant’s liabilities to the landlord are to be extinguished, of necessity so also must be the landlord’s rights against the tenant.  The one could not be achieved without the other as he saw it.  I would also note in passing, under reference to the RVB case, that the provisions of section 1015 of the 2006 Act were, correctly in my view, deemed to be identical to those contained in section 178(4) of the Insolvency Act 1986 the conclusion being that the law applicable to the latter section derived from Hindcastle applied with equal force to a disclaimer under the 2006 legislation.

 

[41]      For my part, respectfully, I can see no reason to challenge Lord Nicholls’ characterisation of the effect of disclaimer.  I derive support for that view from the judgment of Neuberger J (as he then was) in the Stout case supra at page 755G to 756F, in particular.          Neuberger J was faced with a conflict between section 178 of the 1986 Act and section 35(11) of the 1990 Act.  In determining that the latter should prevail over the former, inter alia, he had regard to a principle of statutory interpretation taken from Bennion (see page 758B to C).  My decision in the present case has, to a significant extent, been informed by similar principles of interpretation taken from the same work and I am reinforced in the view that this is an entirely legitimate approach.

 

[42]      Returning to the context of the present appeal, and with regard to the defenders’ submissions, one is constrained to question the basis upon which the effect of the Crown’s disclaimer might in some way be reversed.  Does the legal fiction created by section 1032(1) go so far as to eliminate the consequences of other, specific, statutory provisions within the same statute?  Did Parliament intend the provisions of section 1032(1) to operate so as to re-write history in an unrestrained manner?  My own view is that both these questions fall to be answered in the negative.

 

[43]      In so far as the sheriff found support for the defenders’ position by reference to the case of Advocate General (Petitioner) supra, I suggest that he was wrong to do so.  The Lord Ordinary in that case was required to determine whether a relevant ground of opposition existed to the making of an order for restoration under section 653 of the Companies Act 1985.  The sort of considerations involved in making a decision of that nature do not, in my opinion, equate with the considerations attaching to the issues in the present appeal.

 

[44]      At paragraph [52] in his note, the sheriff posed the question as to whether the defenders’ first plea in law was well-founded.  He also queried whether section 1032(1) meant what it says.  The trite answer is, of course, that it does mean what it says.  However, in articulating that meaning, the court must bear in mind that the artificial scenario created under section 1032(1) amounts to nothing more than the general effect of the order for restoration of PHL to the register of companies.  The specific statutory provision in section 1020(1) which, in the present case, has the effect of terminating the lease should, in my view, prevail for the various reasons I have already referred to.

 

[45]      In reaching his decision the sheriff was, it would appear, unimpressed by what might have been regarded as opportunism on the part of the pursuers.  (See first sentence in paragraph [47] in sheriff’s note).  However, it is my view that the provisions of section 1020(1) meant that, as at the date of the Crown’s disclaimer, the contractual relationship between the pursuers and PHL was at an end.  That being so, the pursuers had no option but to commence proceedings for repossession, absent compliance on the part of PHL and the first defender.

 

[46]      It was not argued on behalf of the defenders that section 1020(2) would avail the pursuers and rightly so.  The “releasing” of PHL from liability under the lease, of necessity, meant that the pursuers no longer had the right to enforce that liability.  The contractual relationship having been extinguished, there was no way in which the pursuers could avoid their rights being affected.

 

[47]      The sheriff’s reliance upon the notion of the pursuers gaining an advantage stems from his consideration of the Advocate General case decided by Lord Glennie.  I have already distinguished that case at paragraph [43] supra and, in any event, I do not consider that the existence of an advantage or disadvantage is a relevant feature in the particular circumstances of this case.

 

[48]      My decision might be seen as somewhat harsh in so far as the defenders are concerned.  However, I would reject any such criticism.  Firstly, in general terms, the construction placed upon the provisions of the 2006 Act simply serves to highlight the importance to be attached to proper compliance with features such as the regular and timeous lodging of company accounts etc.  Dissolution of a company is rightly associated with very significant consequences not only for the company itself but also for other parties with whom they have contracted.

 

[49]      Secondly, and more specifically, in the present circumstances, the petition for restoration lodged at Hamilton Sheriff Court (a copy of which was lodged as a production for the defenders in the present action) discloses that dissolution did not arise through any single, isolated failure on the part of the defenders.  On the contrary, there was a failure to lodge company accounts over a period of 6 years or thereby.

 

[50]      Accordingly, I have given effect to the submissions advanced on behalf of the pursuers in the appeal.  The sheriff’s interlocutor dated 4 April 2014 has been recalled and decree granted in terms of craves one to three in the writ.  Crave four remains outstanding and I have remitted that matter to the sheriff to determine further procedure.  Having achieved success, on appeal, the pursuers are entitled to the expenses of the debate on 17 February 2014 and of the appeal hearing. 

 

[51]      For completeness, I should mention that whilst the first and second defenders are separate legal personae, the pleadings in the action, the debate before the sheriff and the appeal hearing have all proceeded on the basis that their respective interests in resisting the pursuers’ craves coincided.  Therefore, in preparing my judgment, I, too, have proceeded on that basis particularly where Mr Mair appeared to represent both defenders.