Sharp and Others v Woolwich Building Society
| Jurisdiction | England & Wales |
| Judge | LORD BROWNE-WILKINSON,LORD KEITH OF KINKEL,LORD JAUNCEY OF TULLICHETTLE,LORD STEYN,LORD CLYDE |
| Judgment Date | 27 February 1997 |
| Judgment citation (vLex) | [1997] UKHL J0227-3 |
| Date | 27 February 1997 |
| Court | House of Lords |
[1997] UKHL J0227-3
HOUSE OF LORDS
Lord Browne-Wilkinson
Lord Keith of Kinkel
Lord Jauncey of Tullichettle
Lord Steyn
Lord Clyde
and Others
My Lords,
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.
My Lords,
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.
My Lords,
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:
"(7) On the appointment of a receiver under this section, the floating charge by virtue of which he was appointed attaches to the property then subject to the charge; and such attachment has effect as if the charge was a fixed security over the property to which it has attached."
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:
"… on its true ground, viz., the security of persons dealing with the apparent proprietors, against the effect of latent deeds qualifying or limiting their ostensible rights."
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 granter.
In Carse v. Coppen 1951 S.C. 233 Lord President Cooper observed, at p. 239:
"… that it is clear in principle and amply supported by authority that a floating charge is utterly repugnant to the principles of Scots Law and is not recognised by us as creating a security at all."
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:
"The basic rule of Traditionibus non nudis pactis dominia rerum transferuntur applies to the effect that in a question between the parties the document of transfer or conveyance, when duly delivered, transfers a right of ownership to the grantee. As between the granter or his executors and the grantee or his...
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