Petitioner and Respondent: MacColl; Raeburn Christie Clark & Wallace, Aberdeen

Third Respondents and Appellants: Bowen; Bell & Scott LLP

(party not participating in the Appeal, First and Second Respondents)

20 November 2009

1. Pleadings

[1] The petitioner presented a summary application, in the form of a petition, to the Sheriff Court at Aberdeen, craving a declarator that the affairs of the first respondents had been conducted in a manner unfairly prejudicial to his interests, in respect that the first respondents had transferred their entire goodwill and business to the third respondents without consideration. The crave proceeds under section 994 of the Companies Act 2006. The petitioner also craved interdicts against the respondents from disposing of the first respondents' property, including their interest in a lease of premises at Unit 8, The Academy, Belmont Street, Aberdeen. By way of amendment, he also sought "decree of production and reduction" of: (a) a purported assignation of the lease by the first respondents to the third respondents dated 30 September 2007; and (b) a purported agreement for the sale of the business of the first respondents to the third respondents comprising an offer and acceptance dated 18 September 2007. There was also a crave for interim suspension of the assignation.

[2] The petitioner's averments were met largely with bald denials by the third respondents, who alone entered the process. The petitioner averred that he held 961 of the first respondents' 1300 issued share capital. The second respondent held 239 shares, with the balance of 100 being in the name of an individual thought to be deceased. The sole business of the first respondents was a restaurant at the Belmont Street premises, of which they had a lease dated October 2001. Since about that time, the second respondent had been a director of the first respondents. But the petitioner was given control of the day to day management of the business and he established a local manager there. However, during 2007, the relationship between the petitioner and the second respondent deteriorated. While the petitioner was on holiday in August 2007, the second respondent assumed de facto control of the restaurant, changed the locks, and replaced the manager with one of his own choosing, namely a Mr Ho. He began trading from the premises under the name of the third respondents. The petitioner was refused access to the restaurant by the second respondent and Mr Ho..

[3] On 28 August 2007, Mr Ho was appointed as the first respondents' secretary. On 10 September 2007 he was replaced by a firm of solicitors, namely Messrs Cohen & Co. The first respondents' registered office was changed to the address of the solicitors. Meantime, on 1 August, the third respondents had been incorporated. On 7 September, they too changed their office to the solicitors' address. On that date also, Mr Ho was appointed a director of the third respondents. The second respondent's wife was appointed secretary. Not surprisingly, it was averred that the second respondent controlled the third respondents.

[4] Having raised the summary application, the petitioner received a copy of an assignation of the lease from the first to the third respondents dated 30 September 2007. This had been executed by the second respondent and Mr Ho. No consideration was involved. The petitioner averred that the second respondent had effectively engineered the transfer of the whole business assets of the first respondents to the third respondents without any consideration. An earlier agreement, consisting of an offer and acceptance dated 18 September, purporting to sell the assets for £8,000 also existed, but no money had been paid.

[5] The petitioner pled, inter alia, that the third respondents' averments were irrelevant and that decree de plano should be granted (first plea-in-law). He also pled (second plea), strangely, that the third respondents' averments (which are virtually non existent) should not be admitted to probation. The third respondents pled that: (first) the remedies sought by the petitioner against them under section 994 were incompetent; (second) the petitioner's averments were irrelevant and should not be remitted to probation (sic); (third) the crave for reduction was incompetent; and (fourth) the averments were unfounded in fact and absolvitor should follow.

[6] After sundry procedure, on 19 March 2008, the Sheriff appointed the parties "to be heard on the issues of competency" at a diet of debate. On 1 April 2008, the Sheriff also allowed the petitioner's first two pleas-in-law to be debated at the same diet, although, somewhat confusingly, the interlocutor in the appeal print refers to the Sheriff allowing the pleas to be "deleted". At all events, the cause came before the Sheriff for debate on 7 April 2008. As the Sheriff correctly noted, the effect of the interlocutors was that the debate was on the petitioner's first and second pleas-in-law and the third respondents' first to third pleas-in-law.

2. The Sheriff's Interlocutor and Note

[7] On 30 April 2008, the Sheriff repelled the third respondents' first, second and third pleas-in-law. She sustained the first to fourth pleas-in-law for the petitioner and granted the declarator and interdicts sought. She also granted "decree for production and reduction of" the assignation and the agreement, yet at the same time suspended the assignation ad interim.

[8] The Sheriff had first been presented with an argument from the third respondents that a majority shareholder, as distinct from an oppressed minority holder, could not proceed under section 994 of the 2006 Act. This was rejected on the basis of the plain terms of the section. That matter is no longer in dispute. Secondly, the third respondents had argued that the only person who could seek to attack the agreement and assignation was the first respondents rather than an ordinary member, such as the petitioner. That too was rejected and is not the subject of appeal. Thirdly, it was submitted that reduction could not be granted in the Sheriff Court. However, the Sheriff held that the terms of section 996 were sufficiently wide to permit the Sheriff Court to grant the remedy of reduction. She reasoned that the authorities presented to her had all stated that section 996 of the 2006 Act, which gave the Court power to grant "such order as it thinks fit", afforded the Court the "widest possible discretion" as to the remedies it could grant. The Sheriff continued:

"Were it to be the case that some remedies were competent in the Sheriff Court and others only in the Court of Session, complexity, difficulty and delay would be likely to be introduced where none is necessary".

[9] When it came to the question of relevancy, the Sheriff recorded that the third respondents had moved to adjust (sic) their answers. But this was successfully opposed on the basis that four months had passed, during which such adjustment could have been made. No reason for not having adjusted had been advanced.

3. Submissions

THIRD RESPONDENTS AND APPELLANTS

[10] The primary submission was that the Sheriff had erred in holding that section 996 had given the Sheriff Court power to reduce, or to suspend, the assignation. It was trite law that, in general, only the Court of Session had power to grant a reduction (Macphail : Sheriff Court Practice (3^rd ed) para 2.46). This precluded the remedy as an option under section 996 in the Sheriff Court (Wilson v Inverness Retail and Business Park 2003 SLT 301, Lord Eassie at para [27]). This had been made clear by the redefinition of the meaning of "court" in section 1156, which had not been in force at the time of the Sheriff's decision. Sub-section 5(4) of the Sheriff Court (Scotland) Act 1907 had specifically excluded jurisdiction to reduce deeds relative to heritable rights and sub-section 5(5) permitted suspension only in certain specified situations. Accordingly, decree in terms of the crave for reduction ought not to have been granted and the relative averments ought to have been excluded from probation.

[11] The subsidiary submission was that the Sheriff had gone too far in granting decree de plano. The third respondents had only entered the process on 20 February 2008, after the amendment of the petition. They had been given ten days to lodge answers and had done so. Thereafter, a debate had been fixed for 7 April 2008. The Sheriff ought to have permitted the third respondents further time to state a defence on the merits.

PETITIONER AND RESPONDENT
[12] The petitioner maintained that section 996 was wide enough to permit the remedy of reduction in accordance with the Sheriff's reasoning. The new section 1156 had no relevance, as it related to geographical jurisdiction only. It was accepted that, as a general rule, the Sheriff Court did not have the power to suspend or to reduce documents; but it was long recognised that there were statutory exceptions to that rule (Dobie: Sheriff Court Practice p 23). Section 996 created such an exception. Parliament had granted the Sheriff Court concurrent jurisdiction with the Court of Session in situations involving a company, such as the first respondents, with limited capital. The plain and unambiguous meaning (Gloag & Henderson: The Law of Scotland (12^th ed) para 1.36) of the section had thus been to create an exception. In these circumstances, it was recognised that the scope of available remedies was a wide one (In re Bird Precision Bellows Ltd [1986] Ch 658; Wilson v Jaymarke Estates Ltd 2006 SCLR 510, Lord President (Cullen) at para 12). Section 5(4) of the 1907 Act did not prohibit reduction in this context and the remarks of Lord Eassie in Wilson v Inverness Retail and Business Park (supra) were obiter and, in any event, should not be followed.

[13] The Sheriff had been entitled to refuse the third respondents' request for further time. This was a summary application and sufficient time had been afforded to them to state their position (Macphail (supra) para 26.01)

4. Decision

[14] Section 994 of the Companies Act 2006 provides, inter alia, that a shareholder can apply to the Court for relief in a situation where a company's affairs are being, or have been, conducted in a manner unfairly prejudicial to him. Section 996 allows the Court to "make such order as it thinks fit". It is recognised that this gives a court the "widest possible discretion" in the selecting the remedy (Wilson v Jaymarke Estates Ltd (supra), Lord President (Cullen) at para [12]). However, this does not mean that the court can create new remedies, of a type which it otherwise has no power to grant. Thus, it can select from its armoury of competent remedies the one which it thinks appropriate to a given situation. Obvious examples will be orders for payment, ad factum praestandum and interdict. But, in the absence of an express statutory provision, a court cannot grant a remedy which it has no general power to grant.

[15] The Sheriff Court has no jurisdiction to grant the remedy of reduction of documents (Dobie (supra) p 22, under reference to Donald v Donald 1913 SC 274). As distinct from the situation where a statute permits the Sheriff Court to "set aside" a decision or other matter as between the parties to a cause or where reduction ope exceptionis constitutes a defence, reduction of deeds can have a much wider effect. It can affect third parties, over which the Sheriff Court may have no general jurisdiction. In the case of heritable rights, any potential Sheriff Court jurisdiction may rest exclusively in another Sheriffdom. Hence, reduction has tended to be restricted to the Court of Session. It may be that this will change in the future (Report of the Scottish Civil Courts Review chapter 4, para 141, recommendation 29) but that is the law at present. The Sheriff's objections to it, however well reasoned in practical terms, cannot change that. In short, the Sheriff Court has no power to grant reduction in a petition under section 994.

[16] It is worth adding that, even if the Sheriff Court could reduce documents, the appropriate decree would not be one of "production and reduction". First, the Court, if it deems it appropriate, orders production of the deed. On production being satisfied, the Court may then "reduce" the document. Suspension, outwith the context of an appeal process, is a remedy ancillary to reduction and is also not competent in the Sheriff Court in the circumstances averred in this petition. It is a method of preventing diligence being exercised, or proceeding, upon an ex facie valid warrant or charge. No such situation arises here.

[17] The petition was commenced against the first and second respondents in October 2007. There is a clear connection, on essentially unanswered averments, between the second respondent and both companies. The third respondents were brought into the process in terms of the Sheriff's interlocutor of 23 January 2008, granting warrant to serve the amended application upon them. They appeared in the process as early as 20 February 2008. They lodged answers, albeit in skeletal form. From then on, until the debate on 7 April 2008, they had ample opportunity to expand upon their pleadings, but declined to do so. Even at the debate, which was, inter alia, expressly concerned with the petitioner's plea to the relevancy of the third respondents' averments in answer, they could have tendered a proposed amendment setting out any further defence, which they might have had. They did not do so. In these circumstances, the Sheriff was entitled to the view that the answers were essentially exiguous and evasive and did not constitute a proper response to the case against them. The Sheriff was entitled to repel the defences and to grant decree de plano, so far as competent.

[18] Accordingly, the Court will allow the appeal to extent of recalling the interlocutor of 30 April 2008 in so far as it: (1) repels the third respondents' third plea-in-law; (2) sustains the petitioner's fifth plea-in-law; (3) grants decree for production and reduction of the assignation and agreement; and (4) suspends the assignation ad interim. The Court will sustain the third respondents' third plea-in-law and dismiss the action in so far as it relates to the fourth crave of the petition. The declarator and the interdicts, granted in terms of the first, second and third craves, will stand.