NOTES OF JOSEPH SWEENEY AND DONALDA SWEENEY FOR ORDERS IN RELATION TO THE WINDING UP OF WEST LARKIN LTD [2020] ScotCS CSIH_65 (20 October 2020)
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SECOND DIVISION, INNER HOUSE, COURT OF SESSION
Lady Dorrian
Lord Malcolm
Lord Woolman
[2020] CSIH 65
P345/19
P517/19
OPINION OF THE COURT
Delivered by LORD WOOLMAN
in the notes of
(1) JOSEPH ALEXANDER SWEENEY, and (2) DONALDA THERESA SWEENEY
Noters
for orders in relation to
the winding up of WEST LARKIN LIMITED, a company incorporated under the Companies
Acts (company number SC146651)
__________________
Noters: O’Brien; TLT LLP
Respondent: Sandison QC; Currie Gilmour LLP
Liquidator: Duthie QC; Shepherd and Wedderburn LLP
20 October 2020
Introduction
[1] A feud exists between the Sweeney and Urquhart families. It has lasted for many
years. It centres on an area of lan d at Leachkin Brae, Inverness (“the land”). A company
called West Larkin Limited (“WLL”) holds the title to the land. WLL has had a chequered
history and is now in liquidation. It was formerly owned by the Sweeneys.
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[2] The Urquharts claim that they have occupied the land as agricultural tenants since
1990. The Sweeneys deny that claim. They contend that the lease has terminated, or that it
is no longer an agricultural tenancy.
[3] Why does this matter? The answer turns on the “right to buy” legislation. If the
Urquharts are the agricultural tenants, they are entitled to purchase the land for about
£28,000. The Sweeneys believe that an open market sale will achieve a significantly higher
price. They estimate its development value to exceed £1 million. Even without planning
permission, they expect that a bidding war between the families would drive up the price.
[4] Ms Amanda Urquhart petitioned for the winding up of WLL. Subsequently, the
liquidator agreed to sell her the land at its agricultural value. Two members of the Sweeney
family have lodged notes in the liquidation. Their aim is twofold: to prevent Ms Urquhart
from acquiring the land at what they see as a “knock-down” price, and to have a greater
degree of influence in the liquidation.
[5] In the first note, Joseph Sweeney seeks an order requiring the liquidator to challenge
the Urquharts’ right to buy the land. He also seeks rectification so that his name is listed in
WLL’s register of members. In the second note, his mother, Mrs Donalda Theresa Sweeney,
seeks the assignation of a debt from Ms Urquhart.
[6] Ms Urquhart opposes both notes, which came before Lady Wolffe (“the Judge”) for
debate. She dismissed Joseph Sweeney’s note and granted Mrs Sweeney’s note. The
unsuccessful party in each action has appealed to this court.
[7] Although the two proceedings have not been formally conjoined, it is convenient to
deal with them together. The factual background is the same, the legal issues overlap, the
same counsel appeared, and they were heard together.
[8] We shall refer to the parties as “the Sweeneys” and “the Urquharts” as a convenient
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shorthand. Where appropriate we shall also refer to named family members. Apart from
the individuals already mentioned, others who feature in this opinion are Owen and N eil
Sweeney (Joseph Sweeney’s brothers) and the late Hugh Urquhart and Deanna Urquhart
(Ms Urquhart’s parents).
Background
[9] Vastlands Properties Limited (“Vastlands”) formerly owned the land. By letter dated
29 October 1990, it agreed to lease the land to Ms Urquhart’s parents. The letter specified
that: (a) the period of let was 25 years, (b) the rent was £1,250 per annum, (c) it was an
agricultural holding of 9½ acres, and (d) the tenants could use the land for cattle, sheep or
horses.
[10] In 1993 Vastlands conveyed the land to Larkin Brae Horse Farm Ltd ( “Larkin Brae”),
a new private company. Its directors were Owen and Neil Sweeney, who each held one
share. Larkin Brae was struck off the Register of Compan ies in 2001.
[11] In late 2002, Joseph Sweeney purportedly became a shareholder and director of the
company in place of his brother Neil. Three years later Owen and Joseph Sweeney each
transferred their share to Glenhaven Ventures (“Glenhaven”), a Gibraltar partnership set up
by their parents.
[12] We now turn to the origins of the dispute. The land surrounds Woodside Croft,
where the Urquharts formerly lived. Initially they maintained livestock on the land. The
Sweeneys began living in the house in 1998. Since then tensions have existed between the
families. The pleadings contain allegations and counter allegations. We see no profit in
rehearsing them. The general position can be shortly stated. The Urquharts assert that the
Sweeneys have used tactics of intimidation to exclude them from the land. The Sweeneys
deny any such conduct and contend that the Urquharts ceased to use the land for
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agricultural purposes in about 2005.
[13] There have been at least three earlier actions.
First Action
[14] In January 2001 the Urquharts raised proceedings in Inverness Sheriff Court. They
sought to vindicate their rights in respect of the land. The sheriff granted summary decree,
declaring that they had an agricultural tenancy. He also interdicted Owen Sweeney from
interfering with their use and possession of the land. The sheriff principal upheld the
declarator, but recalled the interdict. The Inner House dismissed the appeal as incompetent,
because leave to appeal had not been obtained.
[15] The parties then became aware of two problems. First, as Larkin Brae had been
struck off, it could not be a party to the action. Second, there was doubt over the validity of
the Vastlands’ conveyance. Both problems were ultimately cured. Larkin Brae was restored
to the register and changed its name to “West Larkin Limited” (ie WLL).
[16] The litigation recommenced and the matter came to this court, which held that there
was an agricultural tenancy. Lord Justice-Clerk Gill delivered the opinion of the court. He
said that Owen Sweeney’s case “has been conducted reprehensibly throughout”, and with a
“complete lack of candour”: Urquhart v Sweeney 2006 SC 591 at para 34.
Second action
[17] The Second Division issued its opinion in March 2004. Subsequently both brothers
(Joseph and Owen) were sequestrated. The date of Joseph’s bankruptcy is unclear. In the
pleadings there is mention of both 2007 and 2016, with a discharge two years later .
[18] Owen’s sequestration is of more moment. It took place in 2006. Ms Urquhart
contacted his trustee in bankruptcy and paid £5,000 to acquire Owen’s rights in WLL. In
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2010 she raised an action challenging the validity of the share transfer to Glenhaven. She
claimed that Glenhaven did not exist and also that it was a sham transaction, conceived and
executed in contemplation of bankruptcy.
[19] Ms Urquhart named four defenders in the action: Mrs Sweeney, Owen Sweeney,
WLL and its company secretary. Mrs Sweeney was the only person to defend the action .
None of the others entered the process or did anything to oppose the claims. On the day
that the proof was due to commence (7 November 2017), Mrs Sweeney indicated that she no
longer insisted on her defence. In consequence the court reduced the purported share
transfer by Owen Sweeney and declared that Ms Urquhart held his share in the company.
[20] Ms Urquhart obtained a joint and several decree for the taxed expenses, which
amounted to about £38k. She chose to enforce it only against WLL. It had no funds to pay
the sum. That gave her the basis to bring the winding up petition .
Third action
[21] Despite then owning fifty per cent, Ms Urquhart’s name was not listed in WLL’s
register of members. She raised another action to rectify the omission. She feared that Mrs
Sweeney, who had purportedly been appointed by Glenhaven and was the sole director,
might defeat or prejudice her rights. This third action had not been resolved before WLL
was wound up in December 2018.
Note by Joseph Sweeney
The “right to buy” scheme
[22] To understand why the Sweeneys say that the liquidator should challenge the “right
to buy”, it is necessary to examine the relevant legislation. Section 1 of the Agricultural
Holdings (Scotland) Act 1991 defines an agricultural tenancy as one where (a) the land is
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used for agriculture, and (b) its use is for the purposes of a trade or business .
[23] The Agricultural Holdings (Scotland) Act 2003 contains the details of the scheme that
applies to 1991 Act tenancies:
s 25(1)
tenants can register their interest in acquiring the subjects of let
by sending a notice of interest to the Keeper of the Register of
Community Interests in Land (“the Keeper”)
s 25(8)
the landowner can dispute the registration
s 25(9)-(10) if there is a successful challenge, the Keeper must rescind or
amend the registration
s 25(11)
an appeal lies to the Land Court
s 25(12)
registration lapses upon termination of the tenancy or after five
years, so a fresh notice must be lodged every five years
s 26
before selling the land, the landlord must notify a tenant who
has registered a valid notice of interest
s 28
the tenant then has the option to buy the land
s 34
absent agreement, there is a valuation mechanism.
[24] We draw attention to three features of the scheme. First, if a lease ceases to be an
agricultural tenancy, the lessee loses the right to buy. Second, the price to be paid
disregards any development or “personal interest” value. Third, owners have no time limit
within which to dispute a registration.
[25] The Urquharts registered notices of interest in respect of the land in 2006, 2011 and
2016. After his appointment the liquidator decided not to challenge the last notice. In
February 2019 he agreed to sell the land to Ms Urquhart in terms of the scheme. The
conveyance was scheduled to take place in April 2019. These events provoked the Sweeneys
to lodge their notes.
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Insolvency Act 1986
[26] Chapter VII of the Insolvency Act 1986 regulates the powers of liquidators. They can
(a) bring or defend any action or other legal proceeding, and (b) sell any of the company’s
property: section 167(1)(b) and Parts 1 to 3 of Schedule 4. But liquidators do not act
untrammelled. Under section 167(3) they are:
“subject to the control of the court, and any creditor or contributory may
apply to the court with respect to any exercise or proposed exercise of
any of those powers”
[27] Mr Sweeney invites the court to use its control here, by requiring the liquidator to
challenge the notice of interest, because (a) there is a strong case, (b) an offer of funding has
been made, and (c) a successful challenge would result in a significant financial return to the
creditors and contributories of WLL.
[28] Mr Duthie appeared on beh alf of the liquidator at the reclaiming motions. He
informed us that the liquidation costs now stand at £25,635, together with unquantified
outlays, and that the liquidator adopts a neutral position in respect of both notes .
[29] In his written answers, however, the liquidator explains that he did not regard a
challenge to be in the interests of the general body of creditors. He mentions the following
factors: (i) the Keeper will not generally rescind a notice of interest without a court order; (ii)
the outcome of any challenge is uncertain; (iii) the parties’ history suggests that any court
proceedings would be robustly defended; (iv) the cost of any litigation would be significant,
and (v) the land was only valued at £27,000.
[30] The Judge held that there was no warrant to disturb his decision . In essence she
concluded that the liquidator’s decision was reasonable, taken in good faith, and one open to
him in the exercise of his powers.
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Submissions
Mr O’Brien
[31] Mr O’Brien submits that the Judge (i) applied the wrong test; (ii) failed to consider
the strength of the case and the offer of funding; and (iii) wrongly placed reliance on the
content of the written answers. He contends that the note is relevant and specific, even if the
case is periled on the higher test adopted by the Judge. Accordingly, she ought to have
remitted it for a proof. At the least, she should have allowed the rectification claim to
proceed.
Mr Sandison
[32] Mr Sandison invites us to uphold the Judge’s decision . He submits that she
identified and applied the correct test. The case is therefore irrelevant and bound to fail.
The assertion that the liquidator has a strong challenge is a questionable one. In any event
other factors impinged upon his decision.
The test
[33] When will a court interfere with a liquidator’s decision? That question lies at the core
of the first note. Nourse LJ set out the general rule in Re Edennote Ltd [1996] BCC 718, at 722
C-D. He stated that, absent fraud and bad faith, a court will only review a liquidator’s
decision if it is
“so utterly unreasonable and absurd that no reasonable man would have
done it”.
[34] The scope of the test was examined in Mitchell v Buckingham International plc
[1998] BCC 943 at 960G-H. Robert Walker LJ, who delivered the only opinion, said that the
Edennote test was:
“concerned with practical decisions (albeit important ones) as to
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valuation and disposal, not decisions involving the exercise of judgment
as between different creditors’ competing claims”.
[35] Significantly, however, he reiterated that:
“When liquidators are exercising their administrative powers to realise
assets, the court will be very slow to substitute its judgement for the
liquidators’ on what is essentially a businessman’s decision… All the
cases referred to by Nourse LJ on the point … are concerned with
decisions as to the disposal of assets.” (961A-C)
[36] We regard the present case as clear-cut. The liquidator’s decision concerned the
disposal of assets. He had to determine how best to realise the company’s sole asset . It was
a businessman’s decision that required the exercise of his practical judgment. Accordingly
the Edennote test applied. We shall now examine the factors relied on by Mr O’Brien.
(1) The prospects of success
[37] Mr O’Brien submits that there is a strong argument that the agricultural tenancy has
been abandoned. He founds on a slew of reports from professional surveyors covering the
years 2006 to 2018. They indicate that the Urquharts have not occupied the land, or carried
on any agricultural activity there, during that period.
[38] In response Mr Sandison referred to the liquidator’s comment that the prospects of
success were uncertain as a “dramatic understatement”. He said that Ms Urquhart is
adamant that she has not abandoned the agricultural tenancy. She would vigorously contest
any challenge along the following lines:
(a) Given the Inner House judgment, it would require “strong
evidence” to show that she has abandoned agricultural activities: Wetherall
v Smith [1980] 1 WLR 1290. Neglect alone may not be enough as
diversification is permissible: Gill Agricultural Tenancies (4th ed) at paras
30-20 - 30-21.
(b) A tenant prevented from carrying on agricultural activities may
claim that the holding continues along principles drawn from personal bar:
Hickson & Welch Ltd v Cann (1980) 40 P & CR 218.
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(c) The registration of the three notices of interest had not been
queried.
(d) Ms Urquhart, presently the company’s only substantial creditor,
does not wish the liquidator to make a challenge.
(2) Cost and funding
[39] The liquidator has no funds to mount a challenge. To address this problem
Joseph Sweeney avers that his brother Owen is willing and able to fund the
litigation. That offer first appeared in the pleadings in early July 2019. It therefore
did not figure in the liquidator’s decision -making process. Even if it can now be
taken into account, its contours are blurred. Mr Sandison framed a series of
questions which highlighted some of the difficulties. Does the offer amount to a
guarantee? Does it cover an award of adverse costs? Who has the power to direct
the litigation? If the challenge is successful, would Owen Sweeney become a
preferential creditor? Mr Sandison said that none of these questions had been
satisfactorily answered, either at the debate or before us. Further, no productions
have been lodged to vouch that the offer is genuine.
(3) Financial return
[40] The liquidator had access to a professional report estimating the agricultural value of
the land at £27,000. It is roughly comparable to one instructed by Ms Urquhart (£28,320).
Mr O’Brien says that a sale on the open market would generate a higher price. He does not,
however, specify an amoun t, or even a range of figures. Mr Sandison says that the price is a
matter of conjecture. He points out that the planning authority refused an application for
residential development in 2015. The only certain value is therefore the agricultural value.
Decision
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[41] The liquidator, having regard to the whole picture, was entitled to determine that
success was far from assured, the costs substantial, the funding problematic, and the
financial return in doubt. It follows that Mr Sweeney’s averments do not meet the Edennote
test. The decision cannot be characterised as utterly unreasonable and absurd.
Three points
[42] We deal next with three other points raised by Mr O’Brien.
[43] First, he suggested that the liquidator should at least write to challen ge the notice of
interest. We discount that suggestion as serving no purpose. The Keeper is bound to leave
the matter to the Land Court.
[44] Second, he urged us to take a strict approach to the written pleadings. He invited us
to treat the averments in the note pro veritate and ignore the answers. It is unnecessary to
rule on this point, given our decision on the principal issue. We incline, however, toward a
less rigid approach. In many cases a costly proof can be avoided by an assessment of the
whole pleadings, the productions, and the liquidator’s reasons.
[45] Third, the note should not be dismissed in its entirety, because Mr Sweeney is
entitled to be placed on the list of WLL’s members. That argument has an initial attraction.
As the Glenhaven transaction was void, Mr Sweeney retained his share in the company and
section 148(1) of the Insolvency Act 1986 states:
“As soon as may be after making a winding-up order, the court shall
settle a list of contributories, with power to rectify the register of
members in all cases where rectification is required.”
[46] But there are two powerful arguments against adopting that course of action. The
note now serves no useful purpose. It had been intended as a precursor to give Mr Sweeney
title and interest in the main application, which we have refused. Further, a contributory
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can only make an application in a liquidation if he is able to establish that there are
substantial prospects of assets being available to him: Re Rica Washing Co Ltd (1879) 11
Ch D 36. That cannot be said here.
[47] As an addendum to this branch of the case, we refuse Mr O’Brien’ motion to amend
the pleadings to add Mrs Sweeney as a noter to her son’s application. It fails for the same
reasons. We add this observation. The first note does not aim to improve the position of
creditors or contributories. Instead it attempts to secure a private advantage to the
Sweeneys.
Note by Mrs Sweeney
Introduction
[48] Mrs Sweeney wishes to be recognised as a creditor of the company. In the second
note, she asks the court to grant an order assigning her the judgment debt in terms of the
Insolvency (Scotland) (Receivership and Winding Up) Rules 2018:
“7.21 Liabilities and rights of co-obligants
Where a creditor has an obligant bound to the creditor along with the
company for the whole or part of the debt, the obligant is not freed or
discharged from liability for the debt by [various matters].
…
(4) The obligant may require and obtain at the obligant’s own
expense from the creditor an assignation of the debt, on payment of the
amount of the debt and on that being done may in respect of the debt
submit a claim, and vote and draw a dividend, if otherwise legally
entitled to do so.
(5) Paragraph (4) is without prejudice to any right, under any rule of
law, of a co-obligant who has paid the debt…”
[49] Mr O’Brien’s argument is straightforward. Mrs Sweeney has paid the judgment debt
of £38k. The necessary condition having been met, she is entitled to an assignation. No
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further considerations come into play. In particular Ms Urquhart has no right to object. She
has been paid.
[50] Mr Sandison advances a number of lines of argument to refute this contention. We
are not persuaded by any of them. That is because they all involve departing from the clear
language of the Rule. We see no foundation to follow that course.
[51] The main thrust of Mr Sandison’s submission involves a chain of propositions: (a) the
proviso “if otherwise legally entitled to do so” applies to the whole of Rule 7.21(4), (b) it
imports the common law, (c) Mrs Sweeney’s claim is essentially a right of relief, which is
based on recompense, (d) as she was responsible for incurring the expenses award, she has
no right of relief because there has been no unjustified enrichment, and (e) Ms Urquhart is
therefore not obliged to grant an assignation.
[52] In our view Rule 7.21(4) neatly divides into two parts. The first part specifies that the
obligant who pays the debt (here Mrs Sweeney) is entitled to an assignation. The second
part stipulates that, equipped with the assignation, she has the right to make a claim etc. in
the winding up. The proviso only qualifies the second part. We regard that as the natural
construction of the wording.
[53] We believe that approach also squares with equity. The assignation is the
counterpart for payment. It would be odd if the creditor had a right to take with one hand
and refuse with the other. In addition if a creditor can oppose any application, an obligant
may have to establish matters twice. These would be unfair results. Our preferred
construction also squares with common sense. It allocates to liquidators, who have the
relevant information, the task of determining the listed matters.
[54] We wish to say a word about two other issues. First, Mr Sandison submitted that
Ms Urquhart could refuse to grant an assignation as it is likely to cause her “annoyance or
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trouble”. To vouch that proposition he referred to a line of case law and McBryde, Contract
3rd ed. at paras 12-101 to 12-103. In our view, those authorities do not apply in this context.
Not only would this principle derogate from the wording of the rule, it would also create
uncertainty. Creditors could have a wide field of objection.
[55] Second, Ms Urquhart chose to seek a joint and several decree. We are not satisfied
that she can elide its consequences. Such a decree conclusively establishes pro rata liability:
It is now impermissible to look behind the decree to explore the issue of unjustified
enrichment.
Conclusion
[56] For these reasons we shall refuse the reclaiming motions and adhere to the Judge’s
interlocutors dated 28 January 2020.
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