ELB Securities Ltd v. Alan Love & Prestwick Hotels Ltd, 18 September 2015 – effect of dissolution of tenant on lease of premises

Inner House court case relating to a lease of premises on Buchanan Street in Glasgow. ELB were the Landlords and Prestwick Hotels Ltd, the tenants.

Prestwick were dissolved in June 2013 and then restored to the register of companies in October 2013. In terms of the Companies Act 2006 (s1012), when a company is dissolved its property (including leasehold property) falls to the Crown as bona vacantia and the Crown must then decide whether or not to disclaim the property. In this case the Crown opted to disclaim the property which (in terms of s1020 of the 2006 Act) had the effect of terminating the lease.  ELB therefore sought to recover possession of the subjects from Prestwick.

The crux of the case was the meaning of s1032(1) of the Companies Act 2006 which provides:

“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.”

Prestwick argued that the effect of this section was that when it had been restored to the register all matters reverted to the pre-dissolution status quo to the extent that bona vacantia no longer applied to the premises. As such the lease continued and there was no foundation for ELB’s action to recover possession of the premises. The sheriff agreed with those arguments and dismissed ELB’s action.

Decision of the Sheriff Principal
However, on appeal, the Sheriff Principal recalled the sheriff’s decision and found that ELB were entitled to recover possession of the premises. In coming to this conclusion the sheriff principal took account of the uncertainty which would result if the restoration of the company were also to restore the lease. In terms of s1030(4) of the 2006 Act a company can be restored to the register up to 6 years after it has been dissolved. Thus if, for example, a landlord recovered possession of the premises following a dissolution and let it to another tenant, following Prestwick’s reasoning, the new tenant would cease to have any rights to the premises, if (at any point during the 6 year period) the original tenant were restored to the register.

As such, the Sheriff Principal found that Parliament did not intend that 1032(1) should operate so as to re-write history in an unrestrained manner and that specific provisions concerning the company’s property (contained in ss1012 to 1014 and 1020 to 1022) should prevail over the general effect of s1032. Again Prestwick appealed.

Decision of the Inner House
The Inner House agreed with the approach taken by the Sheriff Principal and refused the appeal. When a company is dissolved and the Crown opts to disclaim the property, the effect is that (1) all of the company’s rights in the property are brought to an end (in terms of s1020(1)) and (2) the property is deemed not to have vested in the Crown (in terms of s1014)[1]. This meant that PHL’s rights in the lease had been terminated from the date the Crown opted to disclaim the property. The judgement states:

“on a proper construction of the 2006 Act, “the general effect” of the restoration of the company as provided for by section 1032, namely “that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register”, merely provides for the general approach which is to be adopted in such circumstances;  but that general approach must give way to the specific and detailed provisions concerning the company’s property as set out in sections 1012 to 1014 and 1020 to 1022.  As a result, therefore, we consider that PHL’s rights in the lease came to an end on 15 July 2013. [The date the Crown opted to disclaim the property.]”

 And goes on:

 “The construction contended for by [Prestwick] would lead to uncertainty and confusion in the commercial world…  In general, applications for restoration of a company may be made at any time in the six years following dissolution, but in the case of a personal injuries claimant, there is no time-limit (section 1030(1)).  Thus on [Prestwick’s] construction, any transactions, contracts, titles, leases, and loans relating to the relevant company property would be struck at years later by an application for restoration resulting in an “as-you-were” position whereby the property simply reverted to the restored company as if the company had never ceased to exist and as if the dealings with the property over the recent years had never occurred…  Parliament cannot have intended to produce such results.”

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.


[1]The Act also makes provision (ss1021 and 1022) for interested third parties such as creditors or sub-tenants to apply to the court for the property to be transferred to them but there was no suggestion that Prestwick qualified in terms of the Act.

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Westfoot Investments Limited v European Property Holdings Incorporated, 31 August 2015 – debtor protection and repossession of property from a company

Sheriff Court case in which a creditor (Westfoot) sought to repossess and eject a debtor (EPH) from residential properties secured by standard securities after the EPH defaulted on payments relating to the associated loan.

EPH (a Panamanian company registered in the USA) admitted that the loan had been made and that it was in continuing arrears. However it argued that Westfoot had failed to comply with the strict statutory requirements necessary to repossess the property.

Calling up procedure
As the properties were residential, EPH argued that, when enforcing the security, Westwood required[1] to comply with the range of statutory obligations[2] aimed at protecting homeowners from being unfairly removed from their homes.

The sheriff rejected that argument finding that the protections contained in the legislation were intended for home owners and not corporate property speculators. It was noted that a company (in contrast to a natural person) does not have a ‘home’ in the sense that it would require to find alternative accommodation if it were ejected from the premises.

The sheriff found that:

“the sole beneficiaries of the legislation are debtors who own their home and use it as a security for debt, home owners who allow the home they mostly live in to be used as security for someone else’s debt, occupiers whose home is not otherwise protected by legislation[3] and entitled residents [including, for example, estranged partners of debtors] who live solely or mainly in a home used by a debtor or proprietor to secure a debt…”


“corporate borrowers that grant standard securities over their residential property assets and use these as collateral security, to raise capital on the financial markets, are not included within the scope of the protection created. That kind of borrowing is a commercial activity.”

Ejection procedure
EPH also argued that, because the legislation governing the ejection of a debtor from a property[4] refers to the proprietor being in “personal occupation” of the property, it could not be used to eject a legal person (such as a company) from a property.

However, the sheriff found that, reading the legislation in a way that (in so far as possible) is ECHR compliant (which included protecting Westfoot’s right to enjoyment of its possessions), resulted in an interpretation of the legislation allowing the ejection of a company such as EPH.

Nevertheless, in this case, as there was no evidence that EPH itself was actually in possession of the properties (which were occupied by tenants[5]), an order for ejection of EPH was not required and the sheriff refused to grant it.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.


[1] This point was conceded by Westwood although the sheriff noted that he had “no doubt that these measures were never intended by the Scottish Parliament to shield Panamanian property companies from the ordinary consequences of their failure to comply with obligations in terms of contracts freely entered into, on the financial markets.”

[2] Contained in the Conveyancing and Feudal Reform (Scotland) Act 1970 and the Heritable Securities (Scotland) Act 1894 (as amended by the Homelessness etc (Scotland) Act 2003, the Home Owner and Debtor Protection (Scotland) Act 2010 and the Housing (Scotland) Act 2010).

[3] Including, for example, assured tenants under the Housing (Scotland) Act 1988.

[4] The Heritable Securities (Scotland) Act 1894.

[5] Who, if they were assured tenants under the Housing (Scotland) Act 1988, would have separate rights of protection from ejection.

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PIP 3 Limited v Glasgow City Council, 1 September 2015 –interpretation of option agreement

Outer House case concerning an Option Agreement relating to a 4.6 acre Brownfield site near the Commonwealth Games Athletes Village in Glasgow which was owned by Glasgow City Council.

PIP 3 wanted to construct a hotel and car park on the site and, between 2006 and 2011, instructed various investigations to be carried (which showed that the site was relatively free from hazardous waste) However, following receipt of a survey from the Council, PIP 3 discovered that a large quantity of extra earth had been deposited on the site which the Council then confirmed was spoil derived from the construction of the nearby Commonwealth Games facilities.

The parties entered an option agreement in late 2011 (schedule 1 of the agreement was termed “the Missives”). Amongst other things, the agreement provided for payment of an initial purchase price by PIP 3 (at settlement –which was 15 working days after PIP 3 exercised the option to purchase the property) and for the Council to instruct a remediation consultant to prepare a Site Waste Management Plan and a Materials Management Plan (as soon as reasonably practicable after execution of the option agreement). The Council were also to procure that the contractors and the remediation consultant were to provide collateral warranties to PIP 3.

The settlement date was 11 April 2013. PIP 3 asked for copies of the Site Waste Management Plan and a Materials Management Plan in February 2013 and, whilst the Council said it was obtaining the documents, it said that there was no obligation on them to deliver them at settlement. PIP 3 did not pay the initial purchase price at settlement. The Council delivered the copy documents to PIP 3 on 5 June 2013. However, PIP 3 still did not pay and the Council rescinded the Agreement on 4 July 2013.

PIP 3 raised an action for breach of contract on the basis that the Council had failed to provide (a) the Waste Management Plan and the Materials Management Plan and (b) the collateral warranties. PIP 3 sought damages of over £15m equating to an estimate of its lost profit if the development had gone ahead. Alternatively, PIP 3 sought abortive costs on the basis that the Council had (i) breached its obligations of good faith and (ii) negligently misrepresented the position by failing to disclose the deposit of hazardous waste.

Lord Woolman dismissed PIP 3’s claim for breach of contract. In the first place, it was found that, in terms of the wording of the relevant clause in the agreement, there was a duty to instruct the Waste Management Plan and a Materials Management Plan but not to deliver them on or prior to settlement. (In coming to that conclusion Lord Woolman also observed that there were only three working weeks between exercising of the option and settlement and it might have been difficult for the Council to obtain the documents in that period.)

Secondly, Lord Woolman referred to the missives. Clause 1.7 provided that Council was not entitled to rescind:  “for any period of time during which the delay in payment by PIP 3 is due to any failure or breach by or on behalf of the Council to implement its obligations or duties under the Missives on time”. Lord Woolman noted that, unlike clause 1.3 which provided that the Council was entitled to rescind both the missives and the option agreement if PIP3 failed to pay the initial purchase price, clause 1.7 referred only to the missives. As such, the limitation of the Council’s right to rescind contained in clause 1.7 applied only in respect of obligations contained in the missives (but not the option agreement). The obligation relating to the Waste Management and Materials Management Plans was contained in the option agreement but not the missives meaning PIP 3 could not withhold payment on the basis non-compliance with the obligation without giving the Council a right to rescind.

Thirdly, PIP 3 had also claimed that they were entitled to withhold payment on the basis that the missives required the Council to deliver certain documents including the collateral warranties at settlement. However, Lord Woolman found that, having regard to the wording of the agreement, payment of the initial purchase price was the hinge of the transaction and, until payment occurred, the Council had no obligation to deliver the collateral warranties (and other settlement documents).

Lord Woolman also held that, in the circumstances[1], the case was not one in which PIP 3 could argue alternative and inconsistent grounds of action. (I.e., on one hand, make a claim for damages equivalent to PIP 3’s lost profit on the basis that the development would have gone ahead were it not for the Council’s actions but, on the other hand, claim for abortive costs on the basis that PIP 3 would not have gone ahead with the transaction if it had known about the hazardous waste.) Lord Woolman took the view that PIP 3 must have known whether it would have exercised the option and developed the subjects and agreed with the Council that the whole thrust of the PIP 3’s arguments indicated that the transaction would not have gone ahead. As such, PIP 3 could only claim for abortive costs and not for damages amounting to lost profit.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.


[1] Lord Woolman took the view that this was an extreme type of case in which the court had to exercise supervision referring to Maclaren Court of Session Practice page 311 and Smart v Bargh 1949 SC 57.

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The University Court of the University of St Andrews and others v Headon Holdings Limited and others, 20 August 2015 – duty of disclosure when negotiating joint venture

Outer House case relating to a joint venture agreement which five parties had entered with a view to obtaining planning permission for, and optimising the sale value of, an area of land to the west of St Andrews.

Four of the parties held title to the parts of the property to be developed and the fifth was the intended developer of the land. Two of the parties to the agreement (including the developer) were controlled by Joseph Headon.

Two of the parties to the joint venture (Headon Holdings and the Cuthills) reached a separate agreement under which the Cuthills would convey an area of land to Headon who would hold the land and any future sale proceeds (less the price paid by Headon to the Cuthills for conveyance of the land) in trust for the Cuthills.

Two of the other parties to the agreement including the University of St Andrews were unaware of the agreement between Headon and the Cuthills when they entered the joint venture. When they became aware of the agreement, they sought to have the joint venture agreement reduced on the basis that (1) they had relied on a material misrepresentation by Headon and the Cuthills and (2) they argued that Headon and the Cuthills had a duty to disclose material facts to them when they entered the joint venture. The university argued that they had been led to believe that Headon and not the Cuthills had the “beneficial interest” (i.e. being the recipient of the benefit which would result from the development of the property in question) as a result of statements made by Joseph Headon and others.

The University pointed out that Headon was closely related to the developer (both were controlled by Joseph Headon) and that, as a party to the joint venture, Headon received certain privileges under the joint venture agreement including voting rights on matters affecting the developer and enjoyed the ability to block agreement amongst the parties to the joint venture on certain issues. As such, if the university had known about the agreement between Headon and the Cuthills (the result of which the university argued was that the Cuthills were the “beneficial owners” of the property in question and not Headon as they had believed), they claimed they would have not have allowed Headon into the joint venture and would not have entered the venture themselves.

Lord Tyre rejected the university’s arguments and dismissed the action.

Duty of disclosure
In the first place Lord Tyre found that, in the circumstances, there was no duty of disclosure. The general rule is that the parties to a contract have no duty of disclosure. However, a duty can arise in relation to certain special contracts or where the parties are in a special relationship. (A common example where the duty arises is contracts of insurance, where facts material to the insurer’s risk are known only to the insured.) The university argued that the duty also applies to parties negotiating a partnership. After noting that it was not definitely decided that the duty applies to such cases in Scotland, Lord Tyre found that he was not persuaded that the joint venture could properly be characterised as a partnership (or analogous to a partnership) for the purpose of applying the law of pre-contractual duties.

Secondly, Lord Tyre held that there had been no misrepresentation in the statements describing Headon as the owner or landowner of the land in question as Headon did in fact hold title to the land. Describing Headon as the landowner did not amount to a representation that Headon was a “beneficial owner” in the sense that the term had been used by the university.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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(First) Ewen John Macpherson and (Second) Lorraine Mary Anne Macaulay v (First)  Richard Colin Macqueen, (Second) Michael Iain Macqueen And (Third) Yvonne Janette Macqueen, 7 August 2015   -enforceability of contractual obligations contained in missives after the missives ceased to be enforceable

Inner House case considering the enforceability of contractual obligations contained in missives after the missives ceased to be enforceable.

Mr McPherson and Ms Macaulay (the pursuers) sold a house and garden ground in North Connel to the Macqueens (the defenders) whilst retaining some adjacent land on which they intended to build two semi-detached houses. The missives contained conditions obliging the defenders (who also owed an adjacent property) to convey a strip of land to the sellers and also to grant a servitude right of access over an additional strip of land. The missives incorporated the Combined Standard Clauses (2009 edition) which include a clause providing that the missives will cease to be enforceable after 2 years.

The pursuers sought an order for specific implement in order to compel the defenders to convey the strip of land and grant the servitude. The action was raised outwith the 2 year period and the defenders argued that it was time barred (as the obligations were either part of the missives or collateral to them and consequently ceased to be enforceable when the missives ceased to be enforceable). That argument was rejected in the sheriff court; the sheriff taking the view that the obligations to convey the strip and grant the servitude formed a separate contract to the sale of the house and garden (albeit recorded in the same document).

However, the Inner House allowed an appeal of the sheriff’s decision. The court agreed with the defender’s contention that the obligations to convey the strip of land and grant the servitude formed part of the overall consideration (in addition to the purchase price of £245k) and, as such, were an intrinsic part of the contract for the sale of the property and became time barred when the missives ceased to be enforceable.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.


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Kennedy and others for suspension and interdict, 21 July 2015 – interpretation of a minute of agreement relating to devlopment

Outer House case concerning the interpretation of a minute of agreement in respect of professional fees relating to a planned development.

Mr Kennedy and others (the trustees) were the owners of a 6.293 acre site in Ayr which they agreed to sell to a house builder (DMH). The missives of sale included a term which allowed DMH to resile from the bargain on the payment of an “abort fee”. DMH paid the fee and resiled. The parties then entered a minute of agreement which provided for the trustees to reimburse DMH for professional fees of just over £165k in certain circumstances if the trustees agreed to sell the site to a third party.

When the trustees agreed to sell the site to Miller Homes, DMH served charges on the trustees for payment of the professional fees.  The trustees denied liability to pay and sought suspension of the charges. The question for the court was whether, in terms of the minute of agreement, there was a liability to pay the fees in the situation where DMH had not obtained planning consent for the development.

On the interpretation of the contract, Lady Stacy said:

“I accept the submissions made by both counsel to the effect that the task of the court is to consider what the reasonable person, armed with the information that the parties reasonably had at the time of entering into the contract, would consider was meant by the words of the contract.  I accept that the construction should, if there is a choice, favour a commercially sensible outcome.  I am bound by the case of Grove Investments to proceed in that fashion. The words of the contract are to be read as a whole, and if possible meaning given to all of them.  I am not concerned to find out what the parties intended to agree, but rather what in the context of the facts agreed or proved, their words show that they did agree. I have reached my view by considering all of the circumstances known to both parties. I have not relied on internal communications known to only one of them.”

 On that basis, and after noting that the minute of agreement was not easy to construe, Lady Stacy accepted DMH’s arguments to the effect that the trustees were liable to pay the fees even where planning permission was not obtained and refused the trustees’ petition.  In coming to that conclusion Lady Stacey found that, although the trustees commercial intention had been hard to ascertain, they had entered the agreement and agreed to make the payment because they wished to encourage  DMH to proceed with their planning application during the period when the trustees were looking for a third party to purchase the site. If, however, the intention had been that the payment would only be made if DMH were successful in obtaining planning permission, it would not have been drafted in the way it had been drafted.  It would not have been difficult to draft an agreement which stated plainly that payment was dependent on DMH obtaining planning permission and the minute of agreement did not do so.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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Execution in counterpart – Legal Writings (Counterparts and Delivery) (Scotland) Act 2015

The Legal Writings (Counterparts and Delivery) (Scotland) Act 2015 came into force on 1 July 2015.

It does two things:

  •  It makes provision to the effect that documents signed in counterpart are legally effective under Scots law
  •  It permits delivery of ‘traditional’ or paper documents by electronic means.

Execution in counterpart
Execution in counterpart refers to the practice (frequently used in England) whereby each of the parties to a document executes a separate physical copy of the document before the documents are exchanged so that each party holds a copy of the documents signed by the other parties.

It can be done where the parties are in different places and signing at different times. As such, it avoids problems of time and cost that can arise if all of the parties have to get together for a signing meeting or wait for a single document to be circulated around each of the parties one-at-a-time for execution.

There was a great deal of confusion as to whether executing documents in counterpart was competent in Scots law prior to the 2015 Act and the situation was so uncertain that it was common practice for parties to contracts in Scotland to agree to contract under English law in order to allow the use of counterpart signing. The 2015 Act removes that uncertainty and confirms the validity of the practice.

Delivery of traditional documents by electronic means
Under Scots law, contractual documents which have not been signed by all of the parties to the contract require delivery (i.e. to be given to the other parties to the contract) to be effective. The theory is that, until the document has been delivered to the other party, it is open to the party granting the obligations to change their mind and destroy or change the principal document but, once the document has been delivered to the other party, it is out of the control of the party granting the obligations and the contract becomes effective.

It is of course common for contracts to be negotiated by email or fax with the relevant documents attached. However, there is case law which suggests that sending a document as an attachment to an email or fax is not sufficient to amount to delivery. The reason for this is that faxed or e-mailed documents are merely copies of the principals meaning that, until the original document is delivered, a party could still change its mind and destroy the original.

The 2015 Act changes that and provides that traditional or paper documents can be delivered electronically meaning that the document will now become effective on the sending of the email (or fax) to which it is attached (unless the document provides otherwise).  It is worth noting that the original documents can still require to be sent to the other party, in addition to electronic delivery, where self-proving status is required or where the principal documents are required for another purpose (for example, registration).

The Legal Writings (Counterparts and Delivery) (Scotland) Act 2015 is available here.

The explanatory notes can be seen here.

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LKS Style Bank – corporate styles

The LKS style bank now has a corporate section which includes new articles, dividends and a shareholder agreement.

The styles have been drafted by Iain Taylor of  e-corporate. You can access them here or from or from the styles menu on our home page.

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Private client locum service

If you think your firm might require a private client locum solicitor please contact james@legalknowledgescotland.com

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Coal Pension Properties Limited v. (First) The Scottish Ministers; (Second) Stirling Council and Standard Life Investments UK Shopping Centre Trust, 14 July 2015 – Extent of selling restriction in planning permission

Inner House case considering the interpretation of a detailed planning permission granted in respect of Springkerse Retail Park near Stirling.

The provision at the centre of the dispute (condition 3) contained a definition of household goods which listed various specific types of (non-food) goods permitted for sale.

Coal Pension Properties (CPP) argued that the retail units within the park could be used for the sale of a wider range of goods than those contained in the condition 3 list and applied for a certificate of proposed lawful use permitting “the retail sale of any non-food goods”. Stirling Council refused the application and a reporter appointed by the Scottish Ministers refused an appeal of that decision. CPP appealed to the Inner House.

CPP contended that the condition 3 list only applied to units engaged in the selling of household goods. (i.e. those which were not engaged in selling household goods could sell any non-food goods). They also argued that the planning permission did not exclude the operation of the Town and Country Planning (Use Classes) (Scotland) Order (which allows buildings within class 1 (shops) to be used for the retail sale of goods other than hot food without it being taken as a development requiring planning permission).

The Inner House rejected those arguments and refused the appeal.

The court noted that, when interpreting a planning permission, the question is not what the parties intended but what a reasonable reader would understand would be permitted by the planning authority. On that basis, the court found that the condition 3 list applied to all of the retail units in the park. The court also agreed with the Scottish Ministers’ argument that, if CPP were correct then, if no unit sold household goods, the condition would not apply and would serve no purpose. In addition, the court took account of an earlier decision letter in relation to the grant of outline planning permission (to which the detailed planning permission expressly referred) which indicated that the condition 3 list applied to all of the retail units in the park.

With regard to the Use Classes Order, the court found that, when construed as a whole considering the purpose and context of the permission (including the earlier outline permission which had referred to the need to restrict the non-food goods sold at the retail park to protect town centre shopping facilities), the planning permission had the effect of excluding the operation of the Use Classes Order.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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