Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2012] CSOH NUMBER 43
A342/11	OPINION OF LADY SMITH in the cause GLENCOE DEVELOPMENTS LIMITED Pursuer; against (FIRST) MARGARET SNEDDON; (SECOND) ANDREW SNEDDON and; (THIRD) CAMPBELL SNEDDON Defender: ­­­­­­­­­­­­­­­­­________________

For Pursuer: Sandison QC; Brodies LLP

For First Defender: Party

For Second Defender: Party

For Third Defender: Govier, advocate; Blacklocks

9 March 2012

INTRODUCTION

[1] The pursuers seek (i) to reduce the disposition to the third defender of heritable property at Onich, Fort William, (ii) interdict against the first and second defenders to prevent them from purporting to deal with or burden that land (and interdict ad interim), and (iii) interdict against the third defender from dealing with or burdening the land (and interdict ad interim).

[2] The case called before me on the motion roll on 20 January 2012, on the pursuer's motion for summary decree in terms of all three conclusions and I gave judgment at that time, granting summary decree in terms of the pursuer's conclusions.

BACKGROUND

The Pursuer

[2] The pursuer is a single purpose vehicle, that purpose being to hold a parcel of development land. The development land concerned is the land which is the subject of the three conclusions referred to above. There is no doubt that the pursuer was heritable proprietor of the land prior to the events complained of in the pleadings.

[3] The issued share capital of the pursuer is four A Ordinary shares. Until 12 July 2011, the first defender held the beneficial interest in two of those shares; at that time, she was sequestrated and that beneficial interest passed to her trustee in sequestration. The first defender's shares were issued to her on 26 October 2004. 6/15 of process is a copy of the pursuer's register of members and share ledger (which was recovered from solicitors who had been instructed by the first and second defenders until 4 August 2011) and it shows her as the registered holder of two shares.

[4] The other two shares were issued to Stewart MacCallum, also on 26 October 2004, and he remained the registered holder of those shares at the time of the events complained of. By June 2011, the beneficial interest in his shares had passed to David Kirkham and he held the shares as trustee for him.

[5] The first defender was company secretary at the relevant time. The second defender was a director of the pursuer. Stewart MacCallum and his wife, Fiona MacCallum were also directors.

The Purported Resolution

[6] A company resolution relating to the land at Onich was purportedly passed on 20 June 2011. A copy of the document relied on by the defenders is at 6/3/1 of process. It reads as follows:

"NOTEIRIAL INSTRUMENT

EXTRAORDINARY GENERAL MEETING OF GLENCOE DEVELOPMENTS LIMITED

20^th June 2011 at 9 Stanmore Gardens, Lanark, Scotland the Registered Office of the Company

This extraordinary General Meeting of the Company with the Director and Company Secretary who form a quorum being Margaret Sneddon and Andrew Sneddon has been convened to rectify the situation concerning the Title No INV14322 which had been erroneously put into the Company name the Company not having paid any sum of money towards the purchase, the whole price of the property having been paid by the non shareholder Director Andrew Sneddon in the sum of £20,000. Accordingly it is resolved that GLENCOE DEVELOPMENTS LIMITED Hereby Transfers it's WHOLE RIGHT TITLE AND INTEREST of the property Title No INV14322 to the said Andrew Sneddon and that the Company hereby consents to the registration hereof of this Resolution in the Books of Council and Session and that this instrument shall form part of the progress of Writs of the property known as ALL and WHOLE the land lying to the northeast of the road from ONICH, FORT WILLIAM to FORT WILLIAM edged red on the Title Plan being 7.9 hectares being FOUR PARCELS OF LAND that comprise a croft as defined in the Crofters (Scotland) Act 1993, and that the Company shall SIGN SEAL & DELIVER a disposition in favour of the said Andrew Sneddon."

The document bears to have been signed by the first and second defenders.

[7] Since the purported resolution was to the effect that company assets were to be transferred to a director, section 190 of the Companies Act 2006 applied. Thus, unless it were to be shown that the land was not a substantial asset (within the meaning of section 191) or that one or more of the provisions of section 195 applied, the transfer would have been invalid.

[8] 6/4 of process is a copy of what bears to be a disposition of the land at Onich from the pursuer to the third defender - who is the son of the first and second defender - with the consent of the first defender, dated 27 June 2011 but with a date of entry of 20 June 2011. 6/5 of process is a copy of an application by the third defender to 'Registers Direct' dated 2 July 2011 to register the disposition in his favour.

[9] In the course of the motion roll hearing, the first defender clearly stated that the meeting of 20 June 2011 which is referred to in the document at 6/3/1 of process was not intimated to Stewart MacCallum. She said that she made a conscious decision not to do so "because of what he had jeopardised". That was a reference to an action and counterclaim which had been litigated in this court and determined by Lord Menzies on 25 March 2011 (see (2011) CSOH 59).

[10] Whilst the first defender asserted that she had, prior to 20 June 2011, transferred one of her shares to the second defender, he has never been entered as a shareholder in the pursuer's share register and was not, accordingly, at the relevant time, a member of the pursuer (Companies Act 2006 s.112).

Rule of Court

[11] The relevant provisions are in rule of court 21.2:

"(1) ...........a pursuer may, at any time after a defender has lodged defences while the action is depending before the court, apply by motion for summary decree against that defender on the ground that there is no defence to the action, or a part of it, disclosed in the defences."

Submissions for the Pursuer

[12] Mr Sandison submitted that there was no defence to the action disclosed in the defences. The nub of the defence was in answer 4, where the defenders averred that there had been a meeting of shareholders/members in June 2011. No valid meeting of the pursuer's members had, however, taken place on 20 June 2011. The members at that time included Mr MacCallum. He was not present at the meeting and no attempt was made to aver that he had been given notice of it. There was no valid resolution to transfer the property. The defenders did not aver that there had been any Board meeting at which such a resolution had been passed, as would have been required; if they were to suggest that the meeting was a director's meeting, that would not do as neither Mr or Mrs MacCallum were present. Further, they did not begin to address the hurdle imposed by section 190 of the 2006 Act, which they required to do, given that the transfer was to a director and was in respect of a substantial asset namely development land which was the pursuer's sole asset.

[13] Regarding the applicability of s.190, the third defender could not be regarded as being in good faith as he was present throughout the litigation before Lord Menzies and must be taken to have been well aware of the disputes surrounding the title to the land.

[14] In these circumstances, the pursuer was entitled to have the transaction set aside by summary decree and that was what the three conclusions sought to achieve.

Submissions for the First Defender

[15] Mrs Sneddon contended that a valid meeting had taken place on 20 June 2011. She focused largely on the issue of whether or not she had, prior thereto, transferred one of her shares to her husband, the second defender, explaining that she had bought a company seal in June 2011. The reason she had done so was that she realised, on receiving Lord Menzies' opinion, that the interdicts that had previously been in place no longer applied. She confirmed, however, that no share transfer to the second defender was recorded in the share register of the company; the books were with a firm of solicitors and she could not get access to them.

[16] She said that there was a quorum at the meeting of 20^th June because two members of the company were present - paragraph 9(a) of the Articles of Association provided that two members constituted a quorum at a general meeting.

[17] I note in passing that whilst stressing that the pursuer had no seal until she acquired one for the company in June 2011, 6/25/2 of process bears to be a sealed share certificate dated 26 October 2004, in respect of the first defender's two shares. If the company had no seal until June 2011, the first defender's share certificate cannot have been sealed in October 2004. The first defender could not provide any satisfactory explanation as to how that had come about notwithstanding that she was the company secretary in October 2004.

[18] Mrs Sneddon then referred to having appointed Mr James M McDonald as a director of the pursuer - summary decree in an action by Mr Kirkham against her and Mr McDonald determining that his appointment was not a valid one was granted by me, in December 2011. It was after that that she decided that she would not intimate the intention to hold the meeting to which 6/3/1 relates. As above noted, she did so because of all that Mr MacCallum had jeopardised. As far as she was concerned, she and her husband had paid for the ground - what was his was hers - and the actions of the MacCallums had just been prejudicial to the whole object of the company. After the meeting had taken place, Mr McDonald had, she said, telephoned Mr McCallum to explain what they had done and what their intentions were. She felt the company was dead in the water, going nowhere and Mr MacCallum had done nothing.

[19] Regarding s.190, she submitted that the assets were of little value. There were only four £1 shares in the pursuer.

[20] Overall, there required, she said, to be a proof at which all matters could be explored.

Submissions for the Second Defender

[21] Mr Sneddon adopted his wife's submissions and added that there seemed, between 2001 and 2004 to have been an opportunity to get rich quick but they had encountered stubborn opposition.

Submissions for the Third Defender

[22] Mr Govier indicated that he recognised he was in difficulty given the terms of s.112 of the 2006 Act. He referred to the case of Enviroco Ltd v Farstad Supply A/S [2011] UKSC 16 as being up to date authority for the proposition that membership of a company is determined by entry on the register of members. He accepted that the only circumstances in which that principle could be departed from would be if there was express provision to the contrary and that there was no such express provision in the present case. Drawing, however, on paragraph 37 in the judgment of Lord Collins JSC
[1], he suggested that the second defender might be given the opportunity to apply to the court for rectification of the register.

[23] Otherwise, Mr Govier said that he recognised that, given that the meeting of 20 June 2011 had not been intimated to Mr MacCallum, it was difficult to resist the pursuer's contentions.

Discussion and Decision

[24] I was satisfied that there was no defence to this action disclosed in the defences. Nothing averred or contended in the submissions made at the hearing demonstrated that there was an issue to try at all. The situation was, plainly, that there was no valid authorisation of the transfer of company property to the second or third defender.

[25] The only response offered by the defenders was that the transfer was authorised at the meeting on 20 June 2011. It was asserted that that was a meeting of members because the first defender had, prior thereto, transferred one of her shares to the second defender. It was said that there was, accordingly, a quorum and the resolution passed was valid.

[26] The meeting was, however, a meeting attended by only one member of the company namely the first defender. Her husband was not a member at that time as he was not entered on the share register (s.112 of the 2006 Act; Enviroco Ltd v Farstad Supply A/S). It was, accordingly, not quorate. Moreover, intimation of the meeting had not been given to Mr MacCallum, who was a member at that time. Any resolution passed at the meeting was, accordingly, not valid (section 301 of the 2006 Act). I would add that it flies in the face of the fundamental principles of UK company law to suggest that a meeting such as took place on 20 June 2011 was a valid one when not only had a person who was entitled to be present at it not been told about it but the company secretary had quite deliberately decided to exclude him.

[27] It is not averred nor was it suggested in submission that there had been a meeting of directors at which the land transfer was approved.

[28] In these circumstances, nothing that the defenders averred or said could amount to a defence to the action. Insofar as Mr Govier suggested that the second defender should be given time to seek to rectify the register of members, the second defender did not make any such motion, rectification could only take place with the consent of the directors and it could not be backdated. In any event, even if he had been a member on 20 June 2011 the meeting would still have been invalid given the failure to intimate to Mr McCallum. Rectification would not have cured the difficulties in which the defenders found themselves.

[29] I would add that although there was, accordingly, no need to determine whether or not s.190 of the 2006 Act applied, the issue certainly arose and it would be for the defender in a case such as the present to address it in the defences. The averments are silent on the point and I would not have been inclined to accept the first defender's ex parte assertion that the land was not a substantial asset based, as it appeared to be, solely on the fact that there are only four issued £1 shares.

Disposal

[30] In these circumstances, I pronounced an interlocutor granting the pursuer's motion for summary decree and finding the defenders jointly and severally, and severally, liable in expenses. The third defender had the benefit of legal aid and the finding against him was as an assisted person.