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|Judgments -- Sharp and Others v. Woolwich Building
Lord Steyn Lord Clyde
I have read in draft the speeches prepared by my noble and learned friends Lord Jauncey of Tullichettle and Lord Clyde. For the reasons which they give, I would allow the appeal.
LORD KEITH OF KINKEL
For the reasons set out
in the speeches prepared by my noble and learned friends Lord Jauncey of Tullichettle and Lord
Clyde, which I have read in draft and with which I agree, I would allow this appeal. The first plea-in-
law for the appellants should be sustained and the action dismissed.
LORD JAUNCEY OF TULLICHETTLE
This appeal raises the
question of what is meant by the word property in a floating charge and in section 53(7) of the
Insolvency Act 1986 ("the Act of 1986") which provides for the effect of the appointment
of a receiver by the holder of such a charge in the following terms:
The facts may be summarised as follows:
(1) On 2 July
1984 Albyn Construction Ltd. ("Albyn") granted a floating charge over the whole of its
property which might from time to time be "comprised in our property and undertaking".
The floating charge was duly registered with the Registrar of Companies.
(2) Albyn entered
into missives with a brother and sister, the Thomsons, for sale of a flat in Aberdeen at a price of
£40,000 which was duly paid by the Thomsons having been borrowed from the appellants.
Entry was given on 14 April 1989.
(3) On 9 August
1990 Albyn delivered an executed disposition of the flat to the Thomson's solicitors.
(4) On 10 August
1990 the respondents were appointed as receivers by the holders of the floating charge.
(5) On 21 August
1990 the disposition together with a standard security granted by the Thomsons to the appellants
were recorded in the general Register of Sasines.
(6) Thereafter a
dispute arose between the respondents on the one hand and the Thomsons and the appellants on
the other as to whether the floating charge attached to the flat on 10 August 1990.
In 1992 the respondents
raised an action against the Thomsons and the appellants for a declarator, inter alia, that the
floating charge attached to the flat on their appointment as receivers, and that they were entitled to
exercise their power to sell it. After a hearing in Procedure Roll the Lord Ordinary granted decree
de plano and the First Division adhered. In the course of a carefully reasoned judgment during the
course of which he analysed many authorities the Lord President concluded that since in the law of
Scotland there could be no fragmentation of the concept of ownership and since property in heritage
passed only on recording of the relevant deed in the appropriate register it followed that the property
in the flat remained in Albyn at the time when the floating charge attached. Lords Sutherland and
Coulsfield expressed similar views.
Before turning to consider the arguments in more detail I propose to make a few general
comments upon the underlying purpose of registration of deeds transferring heritable rights and
upon the impact of the introduction of floating charges into the law of Scotland. The Act 1617, cap.
16 which re-enacted prior legislation requiring the registration of certain writings dealing with
heritable rights was described by Lord Fullerton giving the judgment of the majority of the whole
court in Young v. Leith (1847) 9D 932, 934 as, placing the requirement of registration:
Accordingly the purpose of registration is not to strengthen the position of the grantee of a deed
against actings on the part of the granter but to enable third parties to deal with a registered
proprietor safe in the knowledge that there are no hidden qualifications or impediments in his title.
In addition a recorded title is in normal circumstances good against third parties as well as the
In Carse v.
Coppen 1951 S.C. 233 Lord President Cooper observed, at p. 239:
Thus when floating
charges were introduced by the Companies (Floating Charges) (Scotland) Act 1961 they were a
novel concept in the law of Scotland. They require to be registered after granting but only in the
register in the companies office. They may never crystallise. However if they do and thereby attach
to heritage it has been generally accepted that they have the immediate effect of a recorded
standard security. The result is to create a real right in land which has not been recorded in the
appropriate register of heritable rights and which takes precedence over any prior grant of heritable
rights which has not already been recorded. This is indeed a significant innovation.
The appellants accepted
that a good feudal title to the flat could only have been acquired by recording Albyn's disposition but
they argued that property for the purposes of the floating charge and section 53(7) was not
synonymous with a feudal title to heritage. Rather did property in the context of heritage connote
the current beneficial interest in the subjects which was capable of lawful disposal. In this case
Albyn, by accepting the purchase price and delivering the disposition, ceased to have any beneficial
interest in the subjects and could not lawfully intromit therewith in any way. The respondents on
the other hand maintained that the property in the flat was at all material times in Albyn, that the
delivery of the disposition did no more than carry a defeasible personal right enforceable against the
disponers. In the law of Scotland property in heritage was always vested in the holder of the
recorded title thereto.
The argument for the
respondents which was accepted by the First Division produces a most inequitable result for the
Thomsons and the appellants who have between them paid the full price for the flat and will be left to
rank with other creditors in any proceedings to recover what they have paid. Conversely the holders
of the floating charge will have available as a fund out of which to satisfy Albyn's indebtedness to
them, not only so much of the purchase price as remains in bonis of Albyn but also such sum as
they may realise on any sale of the flat. Albyn's property for the purposes of section 53(7)
theoretically includes both the purchase price and the flat itself. On any view this would be a most
unjust result. However if the undoubted effect of the relevant legislation is to produce such a result
injustice cannot stand in the way of a decision in favour of the respondents. It must then be for
Parliament, if so advised, to remedy the situation.
It was accepted by both
parties that there were effectively three stages in a completed sale of heritage, namely, (1) the
conclusion of missives, (2) the delivery of the disposition to the disponee and (3) the recording of the
disposition by the disponee. However there was dispute between them as to the effect of stage (2),
the appellants arguing that it was significantly different to that of stage (1) in that it transferred all
beneficial interest in the subjects to the disponee and the respondents maintaining that there was
no material difference between the effect of the two stages.
At stage 1 the seller of
heritage is divested of no part of his right of property in the subjects (Gibson v. Hunter Home
Designs Ltd.1976 S.C. 23, 27 per Lord President Emslie), and the buyer has merely a
personal right or jus crediti against the seller to enforce the latter's obligations in the missives. At
stage 2 however the position has changed because the seller has done all that is required of him in
terms of the contract and it is action by the buyer alone which is required to complete a feudal title.
Furthermore the buyer's position is significantly altered inasmuch as he can, inter alia, dispose of
the subjects to a third party by a conveyance in which he deduces his title from the person last
infeft (section 3 of the Conveyancing (Scotland) Act 1924). He may create a security over it (section
12 of the Conveyancing and Feudal Reform (Scotland) Act 1970). He may also pursue possessory
remedies in relation to the subjects (see Earl of Fife v. Duff (1862) 24D 936, 941). However
in the end of the day it is not what rights the buyer acquires by delivery of the disposition with which
this appeal is concerned but what rights are left in the seller. The appellants submitted that the
seller is bereft of all beneficial enjoyment and is left with a bare title while the respondents argued
that he owns the property by virtue of his title. Support for the appellants' submission is to be found
in Professor Halliday's Conveyancing Law and Practice Vol. I, 1--13 where the author states:
Professor Halliday is not
there saying that the buyer on delivery of a disposition acquires a real right but rather that as
between buyer and seller the latter has no longer any beneficial rights in the property. The
respondents traversed this submission by arguing that such rights as are possessed by the buyer
are merely personal which must give way to the real right remaining in the seller by virtue of his
infeftment and that in law the position of the seller is the same under stage 2 as it is under stage
Central to the
appellants' argument was the decision of this House in Heritable Reversionary Co. Ltd. v.
Millar (1892) 19R. (H.L.) 43 (Millar). In that case it was held that heritable property to
which a bankrupt had an unqualified feudal title but in which he had no beneficial interest was not
his property for the purposes of section 102 of the Bankruptcy (Scotland) Act 1856 and therefore did
not vest in his trustee. Although the disposition to the bankrupt was in unqualified terms he had
acquired the subject on behalf of his employers and had executed a formal declaration by which he
acknowledged that he held the subjects in trust. Lord Herschell said, at p. 44:
Lord Watson in a long and carefully reasoned speech after referring to section 102 of the
Bankruptcy (Scotland) Act 1856 continued, at pp. 49-50:
Lord Watson had earlier
pointed out (p. 47) that the validity of a right acquired by a bona fide disponee for value from a
trustee who was in breach of trust depended on the principle that a true owner who chooses to
conceal his right from the public is barred from challenging rights acquired by innocent third parties.
Lord Watson said, at p. 50:
In the First Division the
Lord President in relation to Millar expressed the opinion that the exception which excluded
property held in trust from a bankrupt's estate was well established but was an exception which was
sui generis and not capable of being extended to other situations contrary to the established rules
of Scots property law (Sharp v. Thomson 1995 S.L.T. 837, 853G). Not surprisingly the
respondents relied on these observations. I have two comments to make on the views of the Lord
President. In the first place this House in Millar was seeking to determine what fell within
the description of property for the purpose of the Bankruptcy Act. Lord Macnaghten observed, at
I consider that these observations apply equally to the present case. In the second place, so
far as their right of property is concerned I see no distinction in principle between the position of the
holder of an ex facie absolute recorded disposition who holds as a bare trustee or in security, having
granted a back letter, and the holder of such a deed who has delivered a disposition to a disponee
in exchange for the price. In neither event has the holder any beneficial interest in the subjects. In
the former case he never had it and in the latter case he has effectively disposed of it. The result
however is in both cases the same and how it was reached, is to my mind, immaterial to the
determination of whether the bare title which remained in the holder at the relevant time amounted to
property within the meaning of a particular statute. It is significant that Lord Watson's observations
as to what can be described as a man's property were couched in entirely general terms and not
restricted to the facts of the case before him.
The appellants referred
to a number of other cases in which the question of what constituted heritable property had arisen in
different contexts. I refer only to three. In Bowman v. Wright (1877) 4R 322 the Second
Division held that a domiciled Englishman who had sold his only heritage in Scotland prior to the
service upon him of a summons was not subject to the jurisdiction of the Scottish courts by virtue of
proprietorship of heritage notwithstanding the fact that the disposition which had been delivered to
the disponee prior to the service had not by that time been recorded. Lord Justice Clerk Moncreiff
said, at p. 325:
Millar was followed in Forbes's Trustees v. Macleod (1898) 25R 1012 in which it
was held that a bond and disposition in security which was the subject of a recorded ex facie
absolute assignation with a back letter by the assignee and which had already been redeemed by
the assigner did not pass to the trustee in sequestration of the assignee Lord M'Laren said, at p.
Thomas v. Lord
Advocate 1953 S.C. 151 concerned estate duty on property passing on death under the Finance
Act 1894. Lord Patrick, after pointing out, at p. 161, that once a disposition had been delivered by
the disponer to the disponee the former could no longer deal with the interest which he formerly
possessed in the lands except by a disposition in fraud of the latter, said:
Although two of these cases related to the meaning of property in contexts somewhat different
from the present the Lord Justice Clerk and Lord Patrick approached the matter in a pragmatic way
and looked to see what the disponer was left with after delivering the disposition. If there had been
a fundamental principle of Scots law that property in heritage could, subject to the exception
referred to by the Lord President, only reside in the holder of the recorded title thereto these two
cases must have been decided differently. It is interesting to note that in Gibson v. Hunter Home
Designs Ltd. 1936 S.C. 23 Lord President Emslie observed, at p. 27: