The Scottish Environment Protection Agency And Others V. In The Note For Directions By The Joint Liquidators Of The Scottish Coal Company Limited In The Petition Of The Directors Of The Scottish Coal Company
| Jurisdiction | Scotland |
| Judge | Lord Brodie,Lord Menzies,Lord Justice Clerk |
| Judgment Date | 12 December 2013 |
| Neutral Citation | [2013] CSIH 108 |
| Court | Court of Session |
| Published date | 12 December 2013 |
| Docket Number | P416/13 |
| Date | 12 December 2013 |
| SECOND DIVISION, INNER HOUSE, COURT OF SESSION | |
| Lord Justice Clerk Lord Menzies Lord Brodie | [2013] CSIH 108 P416/13 OPINION OF THE COURT delivered by LORD CARLOWAY, the LORD JUSTICE CLERK in the reclaiming motion by THE SCOTTISH ENVIRONMENT PROTECTION AGENCY AND OTHERS Reclaimers and Respondents; in the Note for Directions by THE JOINT LIQUIDATORS OF THE SCOTTISH COAL COMPANY LTD Respondents and Noters: in the petition of the directors of the Scottish Coal Company Ltd for an order to wind up the company _______________ |
Reclaimers - (1) SEPA: Lake QC; Brodies LLP
(2) Lord Advocate: Mure QC, Sheldon; Scottish Government Legal Directorate
(3) East Ayrshire and South Lanarkshire Councils: Howie QC, D J Edwards;
Ledingham Chalmers LLP
Respondents - (1) Scottish Coal Company: Sellar QC, Govier, R Anderson; HBJ Gately
(2) Advocate General: MacGregor; Office of the Advocate General
12 December 2013
The Directions
[1] By interlocutor dated 11 July 2013, the Lord Ordinary gave directions to the joint liquidators ("the liquidators") of The Scottish Coal Company Limited ("SCC") in the winding up of SCC, which had been ordered by the court on 29 April 2013. The Lord Ordinary directed, inter alia, that the liquidators have the power: first, to "abandon" certain heritable property located in Scotland and owned by SCC ("the first direction"); and, secondly, to "abandon (otherwise disclaim)" certain statutory licences, including licences granted under the Water Environment (Controlled Activities) Regulations 2005 and 2011 ("the CARs") and permits issued under the Pollution Prevention and Control (Scotland) Regulations 2000 and 2012 ("the PPCR"), presently held by SCC ("the second direction"). The directions have considerable practical significance. SCC own land in Ayrshire, Lanarkshire and Fife upon which open cast coal operations were conducted under CARs licenses and PPCR permits. The ongoing costs of complying with the regulatory regimes are about £500,000 per month. If the liquidators were required to comply with the statutory provisions (infra) to surrender the CARs licences, this would cost several million pounds. If the costs of compliance were to be treated as an expense of the liquidation, it is unlikely that SCC's creditors would receive any dividend upon dissolution.
[2] In respect of the first direction, the Lord Ordinary had first asked himself (para [21]) two questions: (1) can someone abandon the ownership of land; and (2) can there be ownerless land? During his consideration of the first question, he surmised that it was "not impossible in an essentially civilian system for an owner to abandon land" (para [22]) even if there were no authority to that effect. He did not consider that either the introduction of land registration or the abolition of feudal tenure affected the issue standing the specific statutory provisions (Land Registration (Scotland) Act 1979 s 2(4); Abolition of Feudal Tenure (Scotland) Act 2000 s 4). Although counsel for both the liquidators and SEPA submitted that it was impossible to have ownerless land, the Lord Ordinary did not consider (para [24]) that the authorities relied upon by them supported that proposition. One particular example identified by the Lord Ordinary was the Crown's waiver of bona vacantia (Macmillan: The Law of Bona Vacantia in Scotland pp 10-12). Another was the statutory right of the Crown to disclaim the land of a dissolved company (Companies Act 2006, s 1013(1)). Accordingly, the Lord Ordinary concluded (para [26]) that:
"... it may be possible for an owner to abandon land and circumstances may arise when, on a disclaimer by the Crown, land becomes ownerless ... If it is possible to abandon corporeal moveable property, it should be possible to abandon land".
Nevertheless, the Lord Ordinary considered that such abandonment would require to be regulated to prevent abandonment being used to avoid obligations.
[3] The Lord Ordinary explained that a liquidator had the same powers as a trustee in bankruptcy (Insolvency Act 1986, s 169(2)). Unlike in a liquidation (Smith v Lord Advocate 1978 SC 259), the property of a bankrupt vested in his trustee (Bankruptcy (Scotland) Act 1985, s 31). However, a trustee could choose not to adopt a contract, including a lease, thus leaving the other party to rank for damages (Goudy, Bankruptcy (4th ed.) pp 282-3; Myles v City of Glasgow Bank (1879) 6 R 718). He could also "decline to take title or carry out obligations in relation to" heritage (Mitchell's Trs v Pearson (1834) 12 S 322; Marquis of Abercorn v Grieve (1835) 14 S 168; Mitchell's Tr v Galloway's Trs (1903) 5 F 612). The Lord Ordinary described (para [18]) the act of a trustee declining to adopt a contract or to "take up" heritable property as an "abandonment". Under reference to Air v Royal Bank of Scotland (1886) 13 R 734 and Whyte v Northern Heritable Securities Investment Co (1891) 18 R (HL) 37, the Lord Ordinary reasoned that the effect of this was to "reverse the vesting ... so that the right [of] property remains in the ownership of the bankrupt". This act freed the trustee of any liabilities in relation to the abandoned asset and allowed the trustee to realise and distribute the remainder of the estate.
[4] The Lord Ordinary considered that there was no reason in principle why a liquidator should not therefore also be entitled to decline to "take up" an asset (eg Asphaltic Limestone Concrete Co v Glasgow Corporation 1907 SC 463; Joint Administrators of Rangers Football Club, Noters 2012 SLT 599; Crown Estate Commissioners v Liquidators of Highland Engineering 1975 SLT 58; P & O Property Holdings v City of Glasgow Council 2000 SLT 444). If a liquidator declined to "take up" land, it would remain the property of the company, until that company was dissolved. It would not form part of the liquidator's "patrimony". It would remain as a "mummified patrimony" with nobody entitled to exercise control over it during the winding up.
[5] Notwithstanding this generality, the Lord Ordinary held (para [34]) that, where a company's use of land was governed by statutory permits, a liquidator's ability to "disclaim" the land (in the Lord Ordinary's sense of declining to include it in the creditors' patrimony or taking steps to terminate ownership) would depend upon the terms of the relevant statutory provisions and permits. Thus, whether the liquidators had power to "disclaim" the land in question depended largely upon the answer to the questions posed by the request for the second direction.
[6] The CARs provide (reg 2) that a liquidator is a "responsible person" for the purposes of the observance of licences, including the conditions for surrender of the licence (reg 24). The Lord Ordinary held that a statutory licence was an interest "arising out of, or incidental to, property" and therefore within a liquidator's control (Insolvency Act 1986, ss 144 and 436). There were two possible interpretations of the CARs in relation to whether a liquidator was bound by the statutory provisions for the surrender of a licence. On a broad interpretation, a liquidator was precluded from surrendering the licence other than by the methods specified in the CARs (Re Mineral Resources [1999] BCC 422). On a narrow interpretation, termination could be achieved by other methods, as a consequence of "external statutory force" (In re Celtic Extraction [2001] 1 Ch 475, Morritt LJ at para 37). Whilst the Lord Ordinary considered that there were strong policy factors in favour of the broad interpretation, and that it reflected the natural meaning of the provisions, such an interpretation would remove a liquidator's right to disclaim property to the extent of licences covered by the CARs.
[7] If a liquidator could not disclaim a licence, it would have the effect of creating a new liquidation expense, which would be a modification of a reserved matter (Scotland Act 1998, sch 5, para C2). It would not create a new category of preferential debt (Insolvency Act 1986, s 386 and Sch 6), but it would create an obligation with priority over such debts and it could alter the order of priority in liquidation expenses (Insolvency (Scotland) Rules 1986, rule 4.67). Thus, the Lord Ordinary reasoned, the CARs fell outside the legislative competence of the Scottish Parliament. Accordingly, he held that the narrow interpretation of the CARs must apply in order to bring the relevant provisions within devolved competence (Scotland Act 1998, s 101; cf Martin v Most 2010 SC (UKSC) 40). The Lord Ordinary concluded that, applying such an interpretation, the liquidators could disclaim the heritable property covered by the first direction and release themselves from the obligations under the CARs licences covered by the second direction.
Submissions
Scottish Environmental Protection Agency ("SEPA")
First direction
[8] SEPA contended that it was necessary to consider exactly what was meant by the terms "abandon" and "disclaim" where they were used in the directions. The liquidators claimed that the effect of the exercise of a power to abandon or disclaim would be that the land would vest automatically in the Crown as bona vacantia. However, a liquidator had the same powers as a trustee in sequestration (Insolvency Act 1986, s 169(2)). A trustee in sequestration had no power to render property bona vacantia. Therefore, a liquidator had no such power.
[9] In order to establish the scope of a liquidator's powers, it was necessary to establish the scope of the powers of a trustee. Section 169 of the 1986 Act was not a "deeming provision"; that is it did not deem a liquidator to be a trustee in sequestration. Its purpose was to confer powers; not to disapply the differences in vesting as between trustees and liquidators. It applied to a winding up by the court, but a company would not necessarily be insolvent in such a winding up if a liquidator could rid a company of property that carried the...
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