|Judgments - Sharp and Others v. Woolwich Building Society continued|
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These observations in relation to stage 2 were obiter but the Lord President clearly thought that there was a significant alteration of the position as between the first and second stages. A view, with which I entirely agree, but which was not shared in this case by Lord President Hope who considered that the right of ownership remained vested in the seller so long as he retained the real right and that he was merely restricted in the exercise of his rights of ownership by his contract with the purchaser (1995 S.L.T. 837, 848J).
These four decisions demonstrate that for statutory purposes an individual can have property in heritage even if the recorded title thereto is vested in someone else. They provide powerful support for a contention that the heritable property to which a floating charge attaches under section 53(7) is the beneficial interest therein and not the bare title thereto shorn of all such interest. However the respondents maintained that the sanctity of the feudal principle was the basis of their argument and they relied on a number of authorities which must now be examined. In Mitchells v. Ferguson (1781) M10296 there was competition between posterior adjudgers whose diligence had been completed by infeftment and a prior uninfeft disponee of the debtor. After complex proceedings lasting for some years the whole court found (M10299) "That the adjudication, and infeftment following upon it, are preferable to the personal disposition founded on by Ferguson." The respondents argued that this was a stage 2 case where a delivered disposition yielded not to a bona fide purchaser for value but to adjudgers who had given no further value for their decree. The factual basis of this argument must be doubtful since it appears from the voluminous pleadings that although the disposition was executed by the debtor it may have been delivered not to the disponee but to the debtor's man of business pending payment of the purchase price by the disponee. That would suggest that it was a stage 1 rather than a stage 2 case and that was certainly the view of Lord Watson in Millar 19B. (H.L.) 43 when, after referring to a number of authorities which included Mitchells v. Ferguson he said, at p. 48:
In these circumstances I do not consider that Mitchells v. Ferguson assists the respondents.
In Young v. Leith (1847) 9D 932 the issue was whether an unregistered sasine (a service as heir and a precept from Chancery) was a nullity in regard to a real right or whether it truly completed a real right to heritage. The majority of the whole court on a remit from this House held that it was a nullity. Lord Fullerton who gave the judgment of the majority said, at p. 937:
When the case was first before the Court of Session (1844) 6D 370 Lord Mackenzie observed, at p. 373 "but an unregistered sasine can be good only against a maker and here there is no maker." The Lord President 1995 S.L.T. 837, 846J said:
If by using the word "property" the Lord President intended to refer to the real or heritable right of the granter I would respectfully agree with him. But if he was intending to refer to property in the wider sense as including beneficial interest I must disagree. Young v. Leith was concerned solely with whether real rights could be created by deeds dependent upon prior unregistered sasine. It did not have occasion to consider property in the wider sense nor to consider what effect an unrecorded deed had vis-à-vis the granter. Lord Coulsfield 1965 S.L.T. 837, 861H was correct in saying that it did not rule this case. Indeed it did no more than lay down what the appellants accepted, namely, that an unrecorded sasine does not create a real right good against the world.
Bank of Scotland v. Liquidators of Hutchison Main & Co. Ltd. 914 S.C. (H.L.) 1 arose out of a transaction between a company and its bank whereby, inter alia, the former undertook to obtain from one of its debtors a debenture over his assets which they would assign to the bank. The debenture was duly obtained but before it had been assigned the company went into liquidation. The bank's claim that the company held the debenture as trustee for its behoof was rejected as untenable on the ground that at the most the company had come under a contractual obligation to obtain and assign it. As matter of fact the debenture did not exist at the date of the agreement. When it was created the assignation thereof was not delivered and no intimation was made to the granter of the debenture. All in all it is difficult to conceive of a more obvious stage 1 case. The decision however does not support the respondents' submission that there is no difference between stage 1 and stage 2. Lord Shaw of Dunfermline after remarking, at p. 15 that the doctrine of converting a promise to transfer into something which effects a transmutation of real ownership into merely apparent ownership is legally indefensible and referring to Forbes's Trustees v. Macleod 25 R 1012 said, at pp. 15-16:
These dicta further demonstrate the difference between the position of a seller who has done no more than agree to convey heritage to another and that of one who has accepted the price and delivered a completed disposition, having thereby done all that is required of him to enable the disponee to perfect his title. Craigie in his Scottish Law of Conveyancing: Heritable Rights 3rd ed., p. 434 draws the distinction between one having a personal title or right to lands by virtue of delivery to him of a disposition thereof by an infeft proprietor and one having a right (jus crediti) to demand the conveyance of land in his favour. Gloag and Irvine's Rights in Security similarly draws a distinction between one having a mere jus crediti and one who, albeit not yet infeft, has a complete personal title to lands (pp. 29 and 33).
My Lords, the respondents' authorities do nothing to detract from the force of the appellants' argument. Indeed the appellants were neither seeking to elevate the delivery of a disposition per se into the creation of a real right nor to qualify the rule that recording is necessary to perfect a title good against bona fide third parties. Furthermore the appellants accepted that the rights conferred by Albyn's disposition would have yielded to a disposition in favour of a bona fide purchaser for value recorded prior to 21 August 1990. They were accordingly not seeking to challenge any of the propositions anent feudal rights contained in the respondents' authorities, which propositions did not assist in resolving the issue which I posed at the outset. There is in my view no principle which requires that the word property occurring in relation to crystallisation of a floating charge must be given the restricted meaning sought by the respondents. There is on the other hand everything to be said for giving it a practical common sense meaning which is likely to produce fair and equitable results between the parties affected by the crystallisation.
I turn to consider the current statutory provisions relating to floating charges. Section 462(1) of the Companies Act 1985 provides inter alia:
The floating charge granted by Albyn echoed, with minor differences the words which I have underlined in the sub section. Section 51 of the Act of 1986 empowers the holder of a floating charge to appoint a receiver of such part of the property of the company as is subject to the charge and section 52 of that Act sets out the circumstances which justify such appointment. The effect of an appointment is provided for in section 53(7). By virtue of section 55 and Schedule 2 of the Act of 1986 the respondents had the power, inter alia, to take possession of Albyn's property and to sell it.
Property is not a technical legal expression and neither in the Companies Act nor in the Act of 1986 is there to be found any exhaustive definition of the word. It is therefore appropriate to construe "property and undertaking" in a practical and realistic way having regard to the context in which the expression occurs. The purpose of a floating charge is to provide security to the holder in preference to the general creditors and the role of a receiver, once appointed, is to deal with the property of the company to which the floating charge has attached in such a way as to satisfy the debt thereby secured. There is nothing in the legislation which specifically confers on a receiver the right to do that which the company could not have done. Had Albyn after receiving the price and delivering the disposition to the Thomsons carried out the some exercise with a third party or granted a standard security over the flat in exchange for a loan it would have committed a fraud but the ability to commit such a fraud does not amount to a beneficial right of property (Millar). If the respondents were entitled now to sell the flat for which Albyn had already been paid they would effectively be confiscating that in which the only beneficial interest was in the Thomsons and the appellants and doing that which Albyn could not lawfully have done. The words of Lord Watson in Millar at p. 50 to which I have already referred are here particularly apposite. Had the legislation intended to confer confiscatory powers upon receivers such as are given neither to trustees in bankruptcy nor to liquidators it is more than remarkable that there is no specific provision to that effect. In my view when the provisions above quoted refer to property and undertaking they must be given the practical meaning of property which is available for the use of the company, in which it has a beneficial interest, and which it is in law entitled to dispone or subject to heritable security. These provisions are concerned with what is lawfully available to satisfy a company's obligations to the holder of a floating charge and not with formalities of feudal title.
The position of a receiver appointed under a floating charge differs from that of a trustee in bankruptcy or a liquidator in that it is accepted that his appointment creates a real right in security over the company's heritage whereas the Act and warrant of confirmation without registration does not clothe the trustee in sequestration with a feudal title to the bankrupt's heritable estate. Similarly a liquidator on appointment does not thereby acquire a real right to the company's heritage. These distinctions are basically procedural. However if the respondents' argument were correct it would mean that not only does the holder of the floating charge have the procedural advantage of obtaining a real right in security without having to record any document of creation but that he obtains a further advantage in acquiring a right over heritable property which could not be obtained by a trustee in sequestration or a liquidator. It would require a very clear statutory provision to persuade me that Parliament intended such a result.
My Lords I summarise the position. At the time when the floating charge crystallised by the appointment of the respondents Albyn held the recorded title to the flat but had no beneficial interest therein. The ability to grant deeds in fraud of the disposition to the Thomsons did not amount to a right of property in law. The effect of section 53(7) of the Act of 1986 was to make available as security all the property in which Albyn had a beneficial interest. Since Albyn had no such interest in the flat at the date of crystallisation it follows that the floating charge did not attach thereto. I would for these reasons allow the appeal.
For the reasons given by my noble and learned friends Lord Jauncey of Tullichettle and Lord Clyde in their printed speeches I too would allow the appeal.
On 2 July 1984 Albyn Construction Ltd. (Albyn) granted a floating charge in favour of the Bank of Scotland. The floating charge was expressed to be "over the whole of the property (including uncalled capital) which is or may be from time to time, while this instrument is in force, comprised in our property and undertaking . . . ." By missives dated 14, 21 and 29 March and 23 May 1989 Albyn agreed to sell a flat at 10 Whinhill Road, Aberdeen, to the first defenders. The first defenders borrowed £40,000, being the purchase price less certain extras, from the second defenders, who are the present appellants. The £40,000 was paid to Albyn on or about 12 June 1989. The first defenders took occupation of the flat then or shortly before that date. On 8 June 1989 the Bank of Scotland executed a letter confirming that they would take no steps to deprive Albyn of the right validly to convey the flat provided that the disposition was recorded within 21 days of that date. However neither that letter nor any disposition was delivered in June 1989. No further letter of non-crystallisation was obtained from the Bank. On 9 August 1990 in exchange for a cheque for the balance of the purchase price a disposition of the flat was delivered by Albyn's solicitors to the first defenders' solicitors. On 10 August 1990 the appellants were appointed as joint receivers of Albyn and the floating charge then crystallized. On 21 August 1990 the disposition in favour of the first defenders was recorded in the Register of Sasines along with a standard security which the first defenders had granted in favour of the appellants. The receivers subsequently sought declarators that the floating charge attached to the flat on the appointment of the receivers, that the floating charge operated as if it was a fixed security over the flat with priority over the standard security granted in favour of the second defenders, and that the receivers were entitled to take possession of the flat and then sell or otherwise dispose of it. The Lord Ordinary granted these declarators and that decision has been upheld by the First Division of the Court of Session. The second defenders have now appealed.
The creation of a floating charge was, as was affirmed in Carse v. Coppen 1951 S.C. 233, foreign to Scottish common law. Floating charges were however recognised under English common law and, since it was believed that they were convenient and advantageous for commercial business, provision was made by statute to enable this form of security to be available in Scotland. That was done originally by the Companies (Floating Charges) (Scotland) Act 1961. The provisions were re-enacted with modifications by the Companies (Floating Charges and Receivers) (Scotland) Act 1972. The intention behind the innovation must have been that those with commercial interests in Scotland should be as well served as their English counterparts. But in relation to land law the two systems were in principle distinct. The introduction of this form of charge into a legal system to which it did not naturally belong provides part at least of the reason for the problem which has arisen in the present case.
The present statutory provision for the creation of a floating charge is to be found in section 462(1) of the Companies Act 1985. It provides that:
By section 410(2) of that Act a floating charge is void against the liquidator or administrator and any creditor of the company unless it is delivered to or received by the Registrar of Companies for registration within 21 days after the date of its creation. In relation to immovable property section 462(5) provides that a floating charge:
Part III of the Insolvency Act 1986 is concerned with receivership. Sections 51 and 52 provide for the appointment of a receiver or joint receivers of such part of the property of the company as is subject to the charge either by the holder of a floating charge or by the court on the application of the holder of a floating charge. An appointment of a receiver by a holder of a floating charge under section 51(1) requires to be done by means of a validly executed instrument of appointment under section 53(1). That subsection requires a copy of the instrument of appointment by which the receiver is appointed to be delivered to the Registrar of Companies for registration within seven days of its execution and the Registrar is bound to enter the particulars of the appointment in the Register of Charges. By virtue of section 53(6) the appointment is deemed to be made on the day and at the time at which it is received by the receiver provided that he accepts it before the end of the business day next following that on which he received it. Section 53(7) then provides:
In relation to the final words of that subsection section 70(1) provides that "fixed security", in relation to any property of the company means:
I proceed upon the basis which has been generally assumed to be correct in this case that in relation to heritable property the effect of a floating charge on crystallisation is deemed to be that of a duly recorded standard security creating a completed security and a jus in re over the heritable property. Such a view is supported by the decision of the First Division in National Commercial Bank of Scotland Ltd. v. Liquidators of Telford Grier Mackay & Co.1969 S.C. 181 which concerned the position under a liquidation and the provisions of the Act of 1961. It is to be noted from the statutory provisions that not only is there no requirement for the floating charge to be recorded in the Register of Sasines or registered in the Land Register but the floating charge will crystallize over the property of the company before notice of the appointment of the receiver has been entered by the Registrar in the Register of Charges.