Scottish Court of Session Decisions

Act: Artis; Shepherd & Wedderburn LLP

Alt: Simpson; Russel & Aitken LLP

30 June 2010

[1] This is a petition by the Advocate General for Scotland, acting on behalf of the Commissioners for Her Majesty's Revenue and Customs ("HMRC"), to restore Spring Salmon & Seafood Limited ("the company") to the Register of Companies ("the register") in terms of s.653 of the Companies Act 1985. The company was struck off the register on 17 August 2007.

[2] The petitioner avers that as at that date the company was liable to pay corporation tax in a sum in excess of £640,000 plus statutory interest. There are detailed averments in the petition about how this liability arises. The petitioner goes on to aver that it feels aggrieved by the company having been struck off the register in that it prevents the petitioner from being able properly to pursue the company for payment of its outstanding debt and to investigate its financial position, properly conclude its enquiries into its financial and tax affairs and finally determine its true liability to tax, interest, penalties and other liabilities. In the circumstances, it avers, it is just that the company be restored.

[3] The petition was served inter alia upon Roderick Christopher Thomas (the third respondent) and Stuart James Thomas (the fourth respondent). Before it was struck off, Roderick Thomas was a director of the company and Stuart Thomas was company secretary. They are brothers. The interlocutor granting warrant for intimation and service allowed those parties and any other party claiming an interest to lodge answers within 21 days after intimation and service. The third respondent duly lodged answers. He denied that the company was indebted to HMRC and, in consequence, denied that the petitioner was a creditor of the company. He set out detailed averments in support of that denial, which is founded on a contention that the company was entitled to intangibles relief. Without going into details, his position is that the petitioners' case against the company will ultimately depend upon the outcome of proceedings currently before the Tax Chamber of the First-tier Tribunal in London, and he argued that the hearing of the petition should be delayed until the conclusion of those proceedings. In addition, he contended, in Answer 6, that the principal objective of the petitioner was to bring pressure on him (and, I think, his brother) to seek a financial settlement by threatening the restoration of the company and a host of costly, onerous and time-consuming enquiries. His pleas-in-law were (i) that the petitioner's averments were irrelevant et separatim lacking in specification and (ii) that, since it was not just that the company be restored to the register, the petition should be dismissed.

[4] In response to this, the petitioners averred (in Statement 11) that the Answers for the third respondent disclosed no title and interest to oppose the restoration of the company to the register; and that he had no such title and interest.

[5] The procedural history of this matter is somewhat convoluted but I should mention it briefly. After sundry adjustment, in December 2008, on the unopposed motion of the petitioners, a hearing on the petition and answers was allowed. It seems that the third respondent's contention that the hearing be delayed, which was not supported by any relevant plea-in-law, was not insisted on. Nor was the petitioner's plea of no title and interest. A hearing was set down for 27 May 2009. On that day the petitioner amended the petition, the hearing was discharged and a proof before answer allowed. The change from a "hearing" to a proof before answer was, I think, simply one of terminology - the important thing was the discharge of the hearing on that date. A new date, in the week of 4 May 2010, was fixed for the proof.

[6] In July 2009, the case was put out By Order. The By Order hearing took place in early August 2009. At that hearing, certain adjustments were allowed to the petition and a timetable was laid down for further adjustments arising therefrom. A further By Order hearing took place before me on 21 October 2010. At that hearing a further period of adjustment was allowed, and orders were made for the lodging of a Note of Issues and witness lists and summaries. A further pre-proof By Order hearing was appointed for 2 March 2010.

[7] At that hearing of 2 March 2010, the question of the third respondent's title and interest was raised. He explained that his title and interest to oppose the prayer of the petition was based upon his concern, articulated in Answer 6, that the principal objective of the petitioner in raising the petition was to bring pressure on him. His complaint was, in essence, that the petitioner had an improper motivation for bringing the petition, amounting to oppressive conduct and an abuse of power. This was the first time that the third respondent had linked the question of his title and interest to his allegations about oppressive conduct on the part of the petitioner. The allegations about oppressive conduct had until then been expressed in very general terms in a single sentence at the end of Answer 6. Since this point now appeared to be central to the question of his title and interest to oppose the restoration of the company to the register, I ordered the third respondent to lodge a Note setting out fully his case on how he contended he would be directly affected by the restoration of the company to the register - so as to give him title and interest to appear - and, in particular, setting out in detail his complaints of oppressive conduct and/or abuse of power by the petitioner. These allegations were linked to a motion by the third respondent for recovery from the petitioner of a confidential internal report which, so the third respondent contended, would support his case of oppression; and the order for the third respondent to provide a Note on this aspect of his case was designed also to assist in the argument about recovery of that internal document.

[8] That Note was duly lodged. It explained the third respondent's concerns about oppression. It was answered by the petitioner. In due course, as a result of the position taken by the petitioner in his Answers to the Note, and in light of an undertaking given by counsel on behalf of the petitioner and recorded in the Minute of Proceedings, the third respondent was satisfied that, whether his concerns were originally well founded or not, they no longer justified his continued opposition to the petition on that basis. At a hearing on 18 May 2010 the third respondent made it clear that he no longer maintained his claim to have title and interest to oppose based on those averments anent oppression. However, that was not the end of the matter. He indicated that he wished to consider amending his Answers to put forward other grounds of opposition. He also indicated that other parties had an interest in opposing the petition and might wish to apply to lodge answers to the petition late. I ordered that any proposed amendments and proposed answers should be lodged by 25 May 2010.

[9] I heard a motion on 10 June 2010 (a) on behalf of the third respondent for his minute of amendment to be received and (b) on behalf of certain other interested parties to have answers to the petition received albeit late. Those other interested parties were Stuart James Thomas (the fourth respondent), Mrs Rebecca Mary Thomas and Mrs Sarah Jane Thomas, respectively the wives of the third and fourth respondents, and Spring Capital Limited, a company within the control of the third and fourth respondents and which, on its averments, has since March 2007, been the successor to the company for the purposes of corporation tax. Mr Simpson appeared for the third and fourth respondents and other interested parties. The motions were opposed by the petitioner both because that they came too late and because the grounds put forward did not reveal title and interest to oppose the making of an order for the restoration of the company. As the argument progressed, the question of title and interest merged, to some extent, with the question of relevancy.

[10] In his Minute of Amendment, as adjusted, the third respondent put forward the following arguments:

(1) One of the purposes for which the petitioner seeks to restore the company to the register is to enable HMRC to assess its liability for PAYE. In the event that, following restoration, HMRC were to assess the company as liable to make such payments, payment might be sought personally from the third respondent. He would consequently be prejudiced.

(2) Neither the company nor the third respondent has access to records to challenge any such assessment or proceedings by HMRC. Those records have been discarded, and those which were not discarded before then were destroyed in floods in July 2007 (before the company was struck off) while stored at offices on the banks of the River Thames.

(3) The third respondent would require personally to meet the costs of responding to any such assessments (and the costs of any proceedings by way of appeal against such assessments), including the costs of professional advice and representation.

(4) The third respondent was a member of the company immediately before its dissolution. He is treated as having acquired his original shareholding in 1998 at market value. On the dissolution of the company, his shares in it were extinguished. That constituted a disposal for the purposes of capital gains tax. He received no consideration for that disposal and therefore realised a loss. He is entitled to set that loss against any chargeable gain he may make. If the company is restored, this disposal will be retrospectively unwound. While the third respondent may have a claim for relief on another basis, that basis for the claim is much less certain.

(5) In the alternative, even if the extinction of his shares in the company on its dissolution did not constitute a disposal for the purposes of capital gains tax, he has claimed relief on the basis that at the time of the company's dissolution the shares were of only notional value and he has reasonably relied upon the dissolution as entitling him to relief for that loss. By letters as recently as 21 May 2010, he has claimed a loss of £3.5 million for the year 2007/2008 in respect of the loss of value of the shares in the company upon its dissolution.

In summary, he contends that he would be prejudiced by the restoration of the company, because it would deprive him of his existing realised capital loss and leave in its place the mere possibility of a claim on a different basis. Alternatively, the restoration of the company would prejudice him by rendering any claim for negligible value relief less likely to succeed. It would also deprive him of the certainty of being able to plan his affairs on the basis of his entitlement to his existing capital loss. It would deny him the primary basis for claiming that loss and render the secondary basis for claiming that loss less certain to succeed. It would require him to respond to enquiries and demands by HMRC and to participate in proceedings by way of appeal against their decisions, thus involving him in the costs of professional advice and representation.

[11] The Answers proposed to be lodged on behalf of Stuart James Thomas (the fourth respondent), Mrs Rebecca Mary Thomas and Mrs Sarah Jane Thomas all raised similar points. In addition, Answers were intimated by Spring Capital Ltd. ("SCL"). It avers that, since the dissolution of the company, it (SCL) has conducted its affairs in the correct and, in any event, reasonable belief that the company could not claim relief on the basis of those losses and that it was entitled to that relief. If the company is restored to the register, there is a concern that HMRC will challenge the claim of the company to have sustained tax-deductible losses, which will in turn put in doubt SCL's entitlement to relief.

[12] Though the question of whether to allow receipt of the Minute of Amendment and to allow Answers from others to be received, although late, is ultimately a matter of discretion, it is convenient to start by considering the linked questions of title and interest and relevancy.

[13] Mr Simpson took the preliminary point that the third and fourth respondents have been called as respondents to the petition and, therefore, necessarily have title and interest to appear. The petitioner sought and obtained an order from the court allowing them to lodge answers if so advised; and he cannot now complain if they have lodged answers and wish to appear in the proceedings to oppose the petition. There is some force in this, but I do not think it carries these respondents the whole way. They are named as respondents for such interest as they have, that is to say such legitimate interest as they may have to oppose the petition. In particular, they are named as respondents because of their positions as officers of the company before it was struck off. The order for service upon them as respondents gives them the opportunity of presenting to the court such arguments as their interest in the proceedings entitles them to present. But it does not give them title and interest to oppose on grounds which are unrelated to the legitimate interests of officers or former officers of the company. Nor does it entitle them to oppose on grounds which are otherwise irrelevant. It seems to me that in this particular respect, where parties are convened in petition proceedings, they are convened not as parties who have an interest but as parties who may have an interest. If they seek to lodge answers they must, if called upon to do so, explain and justify their title and interest. Ultimately their position must be tested by ordinary standards of title and interest. The relevancy of their averments in opposition to the petition must also be tested according to the ordinary rules about relevancy. A party cannot be allowed to take averments to proof simply because he can assert, if it be the case, that he has title and interest. Title and interest and relevancy often go together, and they do go together in this situation. But in any event, the opposition to the motion raises questions of relevancy, and not only title and interest.

[14] The question, in my opinion, is whether what the respondents want to say - in the case of the third respondent in his proposed Minute of Amendment and in the case of the fourth respondent in his proposed Answers - amounts to a relevant ground of opposition to the making of the order sought in the petition. The principles upon which the court acts in exercising its discretion under this and related sections of the 1985 Act have been laid down in a number of decisions in England. These have been recognised as having application also in Scotland: see, for example, Conti v. AIP Private Bank Ltd. 2000 SC 240 and also my recent decision in City of Edinburgh Council (unreported [2010] CSOH 20). Mr Simpson argued that the English cases turn largely on questions of English legal procedure and are of little or no direct relevance in Scotland. He referred, in particular, to the fact that, in Re Blenheim Leisure (Restaurants) Ltd. [2000] BCC 554, the discussion about whether to allow a party to be joined to the action, so as to enable him to oppose the application to restore the company to the register, involved a consideration of the rules about joinder in the English Civil Procedure Rules 1998, and in particular Rule 19.1: see at p.570 ff. I accept that that case did involve a consideration of that Rule of Court and its predecessor. The Rule gave to the court a discretion to add a new party "if it is desirable ... so that the court can resolve all the matters in dispute in the proceedings". But the issue in the case was ultimately whether the party who sought to be added had something relevant to say. Only in light of that could the question of joinder under the Rules of Court be decided. The issue of whether the party seeking to be joined had anything relevant to say turned on the construction of the relevant provisions of the Companies Act and the practice developed in the companies court in London. In dealing with company petitions, this court is not, of course, bound by the practice of the companies court. But it applies what it perceives to be the law in light of English as well as Scots decisions on the relevant statutory provisions and, subject to the inevitable differences in our respective Rules of Court, attempts to adopt a procedure which is consistent with that of the companies court. It would be foolish, in my opinion, when dealing with a UK statute, to do otherwise. In Re Blenheim the majority of the Court of Appeal followed the decision in Stanhope Pension Trust Ltd. [1994] BCC 84 in allowing a person who would be directly affected by the restoration of the company to the register to be heard in opposition to the application for restoration. That, in my opinion, is the test which I should apply. It is to be noted that Nourse LJ, who dissented, was in favour of a more restrictive approach.

[15] The following passage from the judgment of Hoffman LJ in Stanhope Pension Trust Ltd was quoted with approval by Aldous LJ in the Court of Appeal in Re Blenheim at p.572G-573D:

"That leaves the now academic question of whether the judge should have allowed Post and Properties to be joined in the proceedings. As Harman J remarked in Re Portrafram Ltd [1986] BCLC 533 at 543 such applications are usually to all intents and purposes ex parte. The Registrar of Companies, who appears by counsel instructed by the Treasury Solicitor, will assist the court on whether the requirements of the section have been satisfied but has no interest except in securing the Registrar's costs. The making of the order does not determine whether the applicant has a claim against the company or the company has a claim against a third party. As I have already said, all that is required is that the claim should not be merely shadowy. It therefore seems to me that a third party who merely wants to say that the applicant has no claim against the company or that the proceedings which the revived company proposes to bring against him have no prospect of success should not be entitled to intervene in the application.

There are however some cases in which the order will directly affect the rights of a third party, irrespective of whether the applicant has any claim against the company or the company has any claim against the third party. Re Servers of the Blind League was such a case. The residuary legatees had a right (which in the event was adequately safeguarded by Pennycuick J without their appearance) to their bequests under the will which would have been divested if the judge had made an order. In those circumstances I think that they were entitled to be joined in order to argue that such an order should not be made.

In this case it seems to me that Post and Properties were wanting to argue that in principle their potential liabilities under their indemnities had been irrevocably discharged by the dissolution of Forte. As I have said in the first part of this judgment, I think that the alleged principle is fallacious. But it was sufficiently arguable to have persuaded the judge and I think that Post and Properties were entitled to be joined in order to argue it. I would nevertheless allow the appeal and restore Forte to the register."

Tuckey LJ agreed with Aldous LJ. But even on this approach he considered that intervention would rarely be permitted. At p.575A-B he said this:

"I should add that it will still be for the court to decide in any particular case whether or not to allow intervention. It could I think quite properly only allow intervention in cases where the order for restoration itself would or might directly affect the rights of the intervener. This is such a case. In most cases restoration does not affect rights or obligations. For example a debtor whose creditor is struck off is not directly affected by any decision to restore since the debt exists before and after restoration. All that changes is the identity of the creditor."

This last point is important. For a person to be directly affected by the restoration so as to be justified in opposing it, it must be normally be shown that he has altered his position on the strength of the company having been struck off and will suffer some loss or damage if the company is restored which he would not otherwise have suffered. But he is not directly effected by the restoration if all that happens is that he is restored to the position he was in, or would have been in, had the company not been struck off in the first place: see per Laddie J in Re Priceland Ltd [1997] BCC 207 at 215B-C.

[16] In the present case, the prejudice which the third and fourth respondents (and the other would-be parties) say that they will suffer as a result of the company being restored to the register all stems from the fact that the position will revert to that which prevailed before the striking off. The striking off gave them an advantage, as compared with their position prior to the striking off. The restoration to the register, if the prayer of the petition is granted, will take away that advantage. That is all. I do not consider that that qualifies them to object on the basis that they will be directly affected by the restoration.

[17] I would, for that reason, have refused the motions for receipt of the Minute of Amendment and for Answers to be received although late. But I do not need to decide these motions on that basis. The proposed Amendment and Answers raise wholly new issues from those previously in play. They are sought to be raised some five weeks before the proof in this matter. As was emphasised in Re Blenheim - for example, by Tuckey LJ at p.575C, and in the passages cited by Nourse LJ in his dissenting judgment at p.556F-557B - applications to restore a company to the register are quasi-administrative in nature and should be dealt with "simply and quickly". This petition was raised in July 2008, nearly two years ago. It has been in dependence for far too long. If the Amendment and new Answers were now allowed, there is a real risk that the proof dates would be lost and that there would be yet further delay. Even if I had thought that the points now sought to be raised were potentially relevant, I would not have exercised my discretion to allow them to be introduced at this stage, unless I had also been persuaded that they were very likely to succeed. This is far from such a case.

[18] I should add that I was addressed to some extent on the merits of the contentions sought to be put forward in the Amendment and the proposed Answers. I do not propose to go into detail on those aspects. I do not base my decision on those matters, save to say that nothing put before me persuaded me that the proposed arguments for the third and fourth respondents and other proposes respondents were so likely to succeed that they should be allowed in despite the disruption that that would cause.

[19] I shall therefore refuse the motion for the third respondent to have his minute of Amendment received, and I shall also refuse the motions for the fourth respondent and other parties to be allowed to lodge Answers although late.

[20] That leaves the question of what is to happen at the forthcoming proof. The third respondent's Answers contain detailed averments challenging the existence of any tax liability of the company to HMRC. It is, however, clear from the remarks of Hoffman LJ cited above, that

"a third party who merely wants to say that the applicant has no claim against the company ... should not be entitled to intervene in the application."

A proof before answer was allowed when the third respondent sought to justify his opposition by reference to the perceived oppressive behaviour of the petitioner. The averments anent the non-existence of a tax liability on the part of the company were related to this ground of opposition. Now that that has been withdrawn, it is difficult to see that there can be any justification for allowing the third respondent to insist upon his averments that the company owed no tax. That would involve the parties incurring considerable expense for no obvious purpose. Mr Artis moved me to repel the third respondent's pleas-in-law and refuse probation to his Answers for want of title and interest to oppose. As I have said, it seems to me that, despite him having been named as a respondent, the third respondent has no title and interest to oppose on any basis put forward in his Answers. That view is based upon the argument that, in this type of case, the question of title and interest is bound up with the question of relevancy. In those circumstances I would be minded to accede to Mr Artis' motion and repel the third respondent's pleas-in-law and refuse probation to his Answers, subject to one point. Mr Artis' motion was framed on the basis only of title to sue, and not relevancy. I would not want to decide this motion on a basis which might more properly be regarded as one of relevancy without having a motion before me in appropriate terms, and without allowing the third respondent an opportunity of being heard on it. I shall therefore put the case out By Order so that this issue can be resolved before the proof.

[21] The proof will proceed on the day fixed. Subject to anything that the parties may wish to say at the By Order hearing, I anticipate that it will proceed effectively ex parte.