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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> DOONIN PLANT LIMITED, RE (Rev 1) [2018] ScotCS CSOH_89 (28 August 2018)
URL: http://www.bailii.org/scot/cases/ScotCS/2018/[2018]_CSOH_89.html
Cite as: [2019] BCC 217, [2018] CSOH 89, 2019 SLT 195, [2018] ScotCS CSOH_89, [2019] Env LR 10, [2018] BPIR 1580, 2018 GWD 29-370, 2019] BCC 217
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OUTER HOUSE, COURT OF SESSION
[2018] CSOH 89
P599/17
OPINION OF LORD DOHERTY
In the note by
BLAIR CARNEGIE NIMMO C.A. and GERARD ANTHONY FRIAR C.A., as the joint
liquidators of DOONIN PLANT LIMITED
Noters
for
Directions
Noters: Sellar QC; Addleshaw Goddard LLP
Respondent: Lake QC; Brodies LLP
28 August 2018
Introduction
[1] The Noters are the joint liquidators of Doonin Plant Limited (“the company”). The
respondent is the Scottish Environment Protection Agency (”SEPA”). In terms of
section 30(1)(a) of the Environmental Protection Act 1990 (“the EPA”) SEPA is the “waste
regulation authority” for the purposes of Part II of the Act. The Noters seek directions from
the court on three issues concerning the implications for the liquidation of certain provisions
of the EPA. In the event that the Court disagrees with the Noters’ suggested directions and
Page 2 ⇓
2
agrees with SEPA’s suggested directions the Noters seek an order under section 156 of the
Insolvency Act 1986.
Background
[2] The company is registered in Scotland. On 10 July 2015 the Court ordered that the
company be wound up and appointed the Noters to be interim liquidators. At a meeting of
the company’s creditors on 11 August 2015 the Noters’ appointment as liquidators was
confirmed. In terms of section 129 of the Insolvency Act 1986 the liquidation date is
8 January 2015.
[3] Prior to the liquidation date the company carried on a waste management business at
a number of sites including a former colliery site in Armadale (“the site”). The company had
licences under the EPA authorising the carrying on of certain waste management activities.
However, the licence in respect of the site was suspended in 2006.
[4] SEPA maintains that between 2010 and the liquidation date the company deposited
controlled waste at the site which it was not licensed to deposit (and that even if the licence
had been operative it would not have authorised the deposits made). On 12 September 2012
the company and one of its former directors were convicted at Livingston Sheriff Court of
contraventions of section 33(1) of the EPA in respect of deposits made by the company at the
site in 2010.
[5] On 12 December 2012 SEPA issued a notice (“the 2012 notice”) to the company in
terms of section 59(1) of the EPA requiring it to remove unlawfully deposited controlled
waste from the site by 12 March 2013. The relevant controlled waste was described in the
Schedule to the notice. Nearly a year after the liquidation date, on 17 December 2015, SEPA
issued a further section 59(1) notice (“the 2015 notice”) requiring the company to remove
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3
controlled waste (described in part 2 of the Schedule to the notice) from the site within a
period of 6 months. The notice also required the company to take the steps specified in
part 4 of the Schedule within 12 months with a view to eliminating or reducing the
consequences of the deposit of the controlled waste.
[6] The company appealed against the 2012 notice. The appeal has not yet been
determined. I was not advised whether the company appealed against the 2015 notice.
However, the Noters are content to proceed (for the purposes of the directions hearing only)
on the basis that prior to the liquidation date the company did indeed unlawfully deposit
the specified controlled waste at the site and that the need for removal and remediation is
attributable to the activities of the company prior to the liquidation date. The Noters have
not carried out any waste management activities at the site.
[7] The company has not executed any remediation work in response to either
section 59(1) notice. In terms of section 59(6) of the EPA where a person fails to comply with
a requirement which has been specified in a notice SEPA may carry out the remediation
work itself and recover from that person the expenses reasonably incurred in doing so. To
date SEPA has not purported to exercise those powers, nor has it indicated any intention to
exercise them.
[8] The Noters have realised all of the company’s assets other than the site. They
estimate that the cost of remediation work to comply with the notices would be somewhere
between £2.3 million and £3.7 million. Standing the remedial work required it is unclear to
the Noters whether the site has any realisable value. As at 13 February 2018 the company’s
funds were £634,841.59 before payment of liquidation expenses. Since that date the Noters
have incurred further outlays and have rendered further services in respect of which they
will seek reimbursement and remuneration. It is plain that the company’s funds fall far
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4
short of the expenditure which would be required to comply fully with the section 59(1)
notices.
The directions issues
[9] In their Note the Noters refer to the company’s obligations under the section 59(1)
notices as “the Notices Obligations” and to its section 59(6) obligations as “the section 59(6)
Recovery Liability”. They aver (paragraph 8.1) that the overall question which is in dispute
is in effect whether funds ingathered ought to be applied by the Noters to fund remediation
work. They break that down further into three directions issues:
“9.1 The first ... is whether the Notices Obligations, or the s. 59(6) Recovery
Liability, (or all of them) comprised, at the Liquidation Date, ordinary,
unsecured debt which was contingently owed by the Company to SEPA (“a
contingent debt”) and in respect of which SEPA has the right to rank in the
Liquidation under the Insolvency Rules...
...
10.1 The second ... assumes that the First Directions Issue is answered in the
negative in every respect...
10.2 The Second Directions Issue is then whether the Liquidators would be
obliged by the Notices Obligations to have the Remediation Work carried out
by the Company and to apply the Surplus Funds for that purpose... the issue
is whether the Liquidators should, to the extent that funds are available,
procure that the Company meets the obligations under the notices...
11.1 The third ... assumes that the First Directions Issue is answered in the
negative and that the Second Directions Issue is answered in the affirmative...
11.2 The Third Directions Issue is then whether the Remediation Costs would
comprise, under Rule 4.66(1)(a) of the Scottish Rules, “expenses of the
liquidation”...
11.3 More specifically, the Third Directions Issue is whether the Remediation
Costs would be “an outlay properly chargeable or incurred by the liquidator
in carrying out his functions in the liquidation...” within Rule 4.67(1)(a) of the
Scottish Rules...”
[10] In the event that the court directs that the remediation costs would be a liquidation
expense the Noters ask the court to make an order in terms of section 156 of the Insolvency
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5
Act 1986 that their remuneration and outlays be paid in priority to that liquidation expense.
On that hypothesis SEPA would not resist that application.
Hearing
[11] Counsel prepared written submissions in advance of the hearing. While the case was
at avizandum Lord Clark issued his Opinion in Administrator of Dawson International PLC,
Noter [2018] CSOH 52. Counsel then submitted further written submissions relating to that
decision. I am grateful to counsel for the assistance which I have obtained from their written
and oral submissions.
The relevant statutory provisions
[12] Sections 143(1), 156, 175 and 411 of the Insolvency Act 1986 provide:
“143.— General functions in winding up by the court.
(1) The functions of the liquidator of a company which is being wound
up by the court are to secure that the assets of the company are got in,
realised and distributed to the company's creditors and, if there is a
surplus, to the persons entitled to it.
...
156. – Payment of expenses of winding up.
The court may, in the event of the assets being insufficient to satisfy the
liabilities, make an order as to the payment out of the assets of the expenses
incurred in the winding up in such order of priority as the court thinks just.
...
175.— Preferential debts (general provision).
(1) In a winding up the company's preferential debts shall be paid in
priority to all other debts.
...
411.— Company insolvency rules.
(1) Rules may be made—
...
(b) in relation to Scotland, by the Secretary of State, for the
purpose of giving effect to Parts I to VII of this Act.
...”
Preferential debts are defined in section 386 and Schedule 6.
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6
[13] The Insolvency (Scotland) Rules 1986 were made under the power conferred by
section 411. Rules 4.16F, 4.66 and 4.67 provide:
“4.16F.— Debts depending on contingency
(1) Subject to paragraph (2) below, the amount which a creditor shall be
entitled to claim shall not include a debt in so far as its existence or
amount depends upon a contingency.
(2) On an application by the creditor—
(a) to the liquidator; or
(b) if there is no liquidator, to the court, the liquidator or court
shall put a value on the debt in so far as it is contingent, and
the amount in respect of which the creditor shall then be
entitled to claim shall be that value but no more; and, where
the contingent debt is an annuity, a cautioner may not then be
sued for more than that value.
(3) Any interested person may appeal to the court against a valuation
under sub-paragraph (2) above by the liquidator, and the court may
affirm or vary that valuation.
...
4.66.— Order of priority in distribution
(1) The funds of the company's assets shall be distributed by the
liquidator to meet the following expenses and debts in the order in
which they are mentioned:–
(a) the expenses of the liquidation;
...
(b) any preferential debts within the meaning of section 386
(excluding any interest which has been accrued thereon to the
date of commencement of the winding up within the meaning
of section 129);
(c) ordinary debts, that is to say a debt which is neither a secured
debt nor a debt mentioned in any other sub-paragraph of this
paragraph;
(d) interest at the official rate on –
(i) the preferential debts; and
(ii) the ordinary debts
... and
(e) any postponed debt.
...
(3) The expenses of the liquidation mentioned in sub-paragraph (a) of
paragraph (1) are payable in the order of priority mentioned in Rule
4.67.
(4) Subject to the provisions of section 175, any debt falling within any of
sub-paragraphs (b) to (e) of paragraph (1) shall have the same priority
as any other debt falling within the same sub-paragraph and, where
the funds of the company's assets are inadequate to enable the debts
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7
mentioned in this sub-paragraph to be paid in full, they shall abate in
equal proportions.
(5) Any surplus remaining, after all expenses and debts mentioned in
paragraph (1) have been paid in full, shall (unless the articles of the
company otherwise provide) be distributed among the members
according to their rights and interests in the company.
(6) Nothing in this Rule shall affect–
(a) the right of a secured creditor which is preferable to the rights
of the liquidator; ...
...
4.67.— Order of priority of expenses of liquidation
(1) Subject to section 156 and paragraph (2), the expenses of the
liquidation are payable out of the assets in the following order of
priority–
(a) any outlays properly chargeable or incurred by the provisional
liquidator or liquidator in carrying out his functions in the
liquidation, except those outlays specifically mentioned in the
following sub-paragraphs;
(b) the cost, or proportionate cost, of any caution provided by a
provisional liquidator, liquidator or special manager in
accordance with the Act or the Rules;
(c) the remuneration of the provisional liquidator (if any);
(d) the expenses of the petitioner in the liquidation, and of any
person appearing in the petition whose expenses are allowed
by the court;
(e) the remuneration of the special manager (if any);
(f) any allowance made by the liquidator under Rule 4.9(1)
(expenses of statement of affairs);
(g) the remuneration or emoluments of any person who has been
employed by the liquidator to perform any services for the
company, as required or authorised by or under the Act or the
Rules;
(h) the remuneration of the liquidator determined in accordance
with Rule 4.32;
(i) the amount of any corporation tax on chargeable gains
accruing on the realisation of any asset of the company
(without regard to whether the realisation is effected by the
liquidator, a secured creditor or otherwise).
(2) In any winding up by the court which follows immediately on a
voluntary winding up (whether members' voluntary or creditors'
voluntary), such outlays and remuneration of the voluntary liquidator
as the court may allow, shall have the same priority as the outlays
mentioned in sub-paragraph (a) of paragraph (1).
(3) Nothing in this Rule applies to or affects the power of any court, in
proceedings by or against the company, to order expenses to be paid
by the company, or the liquidator; nor does it affect the rights of any
person to whom such expenses are ordered to be paid.”
Page 8 ⇓
8
[14] The EPA (as applicable in Scotland) provides:
“Part II WASTE ON LAND
...
33.— Prohibition on unauthorised or harmful deposit, treatment or disposal etc. of
waste.
(1) Subject to subsection (2), (2B) and (3) below a person shall not—
(a) deposit controlled waste, or knowingly cause or knowingly
permit controlled waste to be deposited in or on any land
unless a waste management licence authorising the deposit is
in force and the deposit is in accordance with the licence;
(b) treat, keep or dispose of controlled waste, or knowingly cause
or knowingly permit controlled waste to be treated, kept or
disposed of—
(i) in or on any land, or
(ii) by means of any mobile plant, except under and in
accordance with a waste management licence;
(c) keep or manage controlled waste in a manner likely to cause
pollution of the environment or harm to human health.
...
(6) A person who contravenes subsection (1) above or any condition of a
waste management licence commits an offence.
...
59.— Powers to require removal of waste unlawfully deposited.
(1) If any controlled waste is deposited in or on any land in the area of a
waste regulation authority or waste collection authority in
contravention of section 33(1) above, the authority may, by notice
served on him, require the occupier to do either or both of the
following, that is—
(a) to remove the waste from the land within a specified period
not less than a period of twenty-one days beginning with the
service of the notice;
(b) to take within such a period specified steps with a view to
eliminating or reducing the consequences of the deposit of the
waste.
(2) A person on whom any requirements are imposed under subsection
(1) above may, within the period of twenty-one days mentioned in
that subsection, appeal against the requirement to a magistrates' court
or, in Scotland, to the sheriff by way of summary application.
(3) On any appeal under subsection (2) above the court shall quash the
requirement if it is satisfied that—
(a) the appellant neither deposited nor knowingly caused nor
knowingly permitted the deposit of the waste; or
(b) there is a material defect in the notice; and in any other case
shall either modify the requirement or dismiss the appeal.
(4) Where a person appeals against any requirement imposed under
subsection (1) above, the requirement shall be of no effect pending the
Page 9 ⇓
9
determination of the appeal; and where the court modifies the
requirement or dismisses the appeal it may extend the period
specified in the notice.
(5) If a person on whom a requirement imposed under subsection (1)
above fails, without reasonable excuse, to comply with the
requirement he shall be liable, on summary conviction, to a fine not
exceeding level 5 on the standard scale and to a further fine of an
amount equal to one-tenth of level 5 on the standard scale for each
day on which the failure continues after conviction of the offence and
before the authority has begun to exercise its powers under subsection
(6) below.
(6) Where a person on whom a requirement has been imposed under
subsection (1) above by an authority fails to comply with the
requirement the authority may do what that person was required to
do and may recover from him any expenses reasonably incurred by
the authority in doing it.
...”
None of the qualifications to section 33(1) contained in section 33(2), (2B) and (3) are relevant
in the present case.
Waste Framework Directive
[15] Part II of the EPA was intended to give effect to the Waste Framework Directive
(Council Directive 75/442/EC of the 15 July 1975). In In re Celtic Extraction Ltd (in liquidation)
[2001] chapter 475 Morritt LJ set out a convenient summary of that directive (at
paragraph 10):
“10 ... In the recitals to the Directive the Commission recognised that the
disparity in the treatment of the control of waste by member states affected
the functioning of the common market and should be harmonised with the
essential objective of the protection of human health and the environment
against harmful effects of the collection, transport, treatment, storage and
tipping of waste. It enunciated a principle of "polluter pays" and required
member states to take the necessary measures. Naturally it did not go into
any detail and, in particular, was silent as to the consequences of the
insolvency of the polluter.”
Page 10 ⇓
10
[16] Similar observations could be made of the current Waste Framework Directive -
Directive 2008/98/EC of the European Parliament and of the Council of 19 November 2008.
It continues to enunciate the polluter-pays principle. It too is silent as to the consequences of
the insolvency of the polluter. The Recitals in its Preamble narrate:
“(1) Directive 2006/12/EC of the European Parliament and of the Council of 5
April 2006 on waste establishes the legislative framework for the handling of
waste in the Community ... It ... establishes major principles such as an
obligation to handle waste in a way which does not have a negative impact
on the environment ... and, in accordance with the polluter-pays principle, a
requirement that the costs of disposing of waste must be borne by the holder
of waste, by previous holders or by the producers of the product from which
the waste came.
...
(26) The polluter-pays principle is a guiding principle at European and
international levels. The waste producer and the waste holder should
manage the waste in a way that guarantees a high level of protection of the
environment and human health.
...
(45) Member States should provide for effective, proportionate and dissuasive
penalties to be imposed on natural and legal persons responsible for waste
management, such as waste producers, holders, brokers, dealers, transporters
and collectors, establishments or undertakings which carry out waste
treatment operations and waste management schemes, in cases where they
infringe the provisions of the Directive. Member States may also take action
to recover the costs of non-compliance and remedial measures...
...”
Articles 14 and 36 provide:
“Article 14
Costs
1. In accordance with the polluter-pays principle, the costs of waste
management shall be borne by the original waste producer or by the current
or previous waste holders.
2. Member States may decide that the costs of waste management are to be
borne partly or wholly by the producer of the product from which the waste
came and that the distributors of such product may share these costs.
...
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11
Article 36
Enforcement and penalties
1. Member States shall take the necessary measures to prohibit the
abandonment, dumping or uncontrolled management of waste.
2. Member States shall lay down provisions on the penalties applicable to
infringements of the provisions of this Directive and shall take all necessary
measures to ensure that they are implemented. The penalties shall be
effective, proportionate and dissuasive.”
Counsel for the Noters’ submissions
[17] Mr Sellar advanced a number of submissions in support of the proposition that, on a
proper construction of section 59, any liabilities arising were liabilities of the company, not
personal liabilities of the liquidators. Since in fact that proposition was not disputed, it is
unnecessary to rehearse those submissions.
The first directions issue
[18] Mr Sellar submitted that the Notice Obligations did not create a debt of any sort
owed to SEPA. The short point was that they did not create any obligation to pay SEPA.
[19] On the other hand, the reasonable expense which SEPA would incur if it carried out
the work necessary to comply with the notices - the section 59(6) Recovery Liability - was a
contingent debt owed by the company to SEPA at the liquidation date. It fell to be valued at
that date (taking account of the hindsight principle if appropriate). Reference was made to
Liquidator of Ben Line Steamers Ltd 2011 SLT 535, per Lord Drummond Young at
paragraphs 21 and 23; Costain Building and Civil Engineering Ltd v Scottish Rugby Union plc
1993 SC 650, per Lord President Hope at p 654A; and Joint Liquidators of Scottish Coal v
Scottish Environment Protection Agency 2014 SC 372, per the Opinion of the Court delivered
by the Lord Justice Clerk (Lord Carloway) at paragraph 145. On a proper analysis the
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12
company was subject to a contingent liability to pay SEPA the remedial costs. Reference
paragraphs 76-86; In re Sutherland, decd [1963] AC 235, per Lord Reid at pp 247-248, and per
Lord Guest at p 264; Gloag on Contract (2nd ed.), p 272; Laverty v British Gas Trading Ltd
[2015] Bus LR 17, per Sir Terence Etherton C at paragraphs 81-83; Administrator of Dawson
International PLC, Noter, supra, per Lord Clark at paragraphs 74 - 80 and 91. As at the
liquidation date the offending waste had been deposited on the site by the company. The
2012 notice had been served requiring the removal of the waste specified in that notice.
Although at that date the 2015 notice had not yet been served and SEPA had not exercised
any of its powers under section 59(6) in relation to any of the waste, the company had
subjected itself to the section 59 regime. It had been vulnerable to the section 59(6) powers
being exercised by SEPA. That had been sufficient to give rise to a contingent debt owed at
the liquidation date to SEPA. There had been a real prospect that the specific liability to
repay SEPA would be incurred. In the case of a statutory obligation it is a question of
statutory interpretation whether the obligation gives rise to a contingent debt. Whether or
not such a liability exists cannot depend upon the particular policy of a putative creditor.
[20] Accordingly the first directions issue should be answered in the negative in respect
of the Notices Obligations but in the affirmative in respect of the section 59(6) Recovery
Liability.
The second directions issue
[21] If, as the Noters maintain, the section 59(6) Recovery Liability was a contingent debt,
the second and third directions issues do not arise. If SEPA is entitled to prove for that
liability there could be no question of the Noters being obliged to carry out the work.
Page 13 ⇓
13
[22] Even if the section 59(6) Recovery Liability was not a contingent debt for which
SEPA could prove, the Noters are not bound to carry out the company’s Notice Obligations.
The Notice Obligations were requirements which were imposed on the company by virtue
of SEPA’s exercise of a statutory power. No requirement had been imposed upon the
Noters (cf. the regulations considered in Joint Liquidators of Scottish Coal v Scottish
Environment Protection Agency, supra, and the very different circumstances of Re John
Willment (Ashford) Ltd [1980] 1 WLR 73 where the incurring of liability stemmed from the
receiver’s actions). The Noters’ functions are to secure that the assets of the company are got
in, realised and applied or distributed in accordance with the scheme of distribution laid
down by the Insolvency Act 1986 and the Insolvency (Scotland) Rules 1986. It would not be
right for the Noters to give the Notice Obligations a priority which the statutory scheme
does not accord to them. The second directions issue should be answered in the negative.
The third directions issue
[23] Since the Noters are not obliged to use the funds ingathered to carry out any part of
the works described in the Notice Obligations the third directions issue does not arise.
[24] If the Noters were to pay any of the costs of complying with the Notice Obligations
such payment would not be an outlay properly chargeable or incurred in carrying out their
functions in the liquidation in terms of Rule 4.67(1)(a). In In re Nortel GmbH, supra, Lord
Neuberger considered the analogous question of administration expenses at paragraph 100:
“100
While it would be dangerous to treat any formulation as an absolute rule, it
seems to me, at any rate subject to closer examination of the authorities and
counter-arguments, a disbursement falls within rule 2.67(1)(f) if it arises out
of something done in the administration (normally by the administrator or on
the administrator's behalf), or if it is imposed by a statute whose terms render
it clear that the liability to make the disbursement falls on an administrator as
Page 14 ⇓
14
part of the administration—either because of the nature of the liability or
because of the terms of the statute.”
[25] Mr Sellar accepted that where a legislative provision is enacted with a view to giving
effect to an EU directive the provision ought to be given a conforming interpretation (see eg
Vodafone2 v HMRC [2010] chapter 77, per Sir Andrew Morritt C at paragraphs 36 - 37 and
Longmore LJ at paragraph 70; Football Association Premier League Ltd v QC Leisure
[2012] EWCA Civ 1708, per Etherton LJ at paragraphs 51, 55, 57 and 60). However, a conforming
interpretation could not go “against the grain” of the legislation. It is not permissible under
the guise of such an interpretation for the court to be required to make decisions on issues
which it is not equipped to evaluate. Whether or not preservation of the environment is
more important than the expeditious and equal distribution of available assets among the
unsecured creditors of an insolvent company is such an issue.
[26] The section 59 regime does not provide expressly that the Notice Obligations bind
the liquidator instead of, or in addition to, the company (cf. the regulations considered in
Joint Liquidators of Scottish Coal v Scottish Environment Protection Agency, supra); and on a
proper construction of section 59 no such liabilities fall to be implied by reason of the nature
of the liability which section 59(1) makes provision for.
[27] The notice requirements stem from the pre-liquidation date activities of the
company. They are not post-liquidation liabilities. They were not incurred by the Noters in
carrying out their functions in the liquidation. Their payment would not involve the
liquidators discharging pre-liquidation liabilities for the benefit of the liquidation. Reference
was made to Laverty v British Gas Trading Ltd, supra; In re Toshuko Finance UK plc [2002] 1
WLR 671; and In re Lundy Granite Co, Ex p Heavan (1871) LR 6 chapter App 642.
Page 15 ⇓
15
[28] Mr Sellar submitted that if SEPA’s approach is correct it would make liquidations
unworkable where a company had significant section 59(1) obligations. It would result in
insolvency practitioners declining appointment as liquidators in those circumstances. If, as
here, the costs involved exceed the funds ingathered it is difficult to see how the liquidator is
to decide what elements of the obligations should be given priority. At a practical level,
contractors would be likely to insist that liquidators assume personal liability under
contracts for remedial work. Since if payments for remedial work are liquidation expenses
they would have priority over the payment of the liquidator’s remuneration, liquidators
would be placed in the invidious position of accepting appointment in the hope that the
court would make a section 156 order varying the statutory priority.
[29] Accordingly the third directions issue should be answered in the negative.
Section 156 order
[30] In the event that the second and third directions issues fall to be answered in the
affirmative, the Noters seek an order providing that their remuneration and outlays should
have priority over section 59(1) remedial costs. Reference was made to Joint Liquidators of
Direct Sharedeal Ltd 2013 SLT 822 and Re Berkeley Applegate (Investment Consultants) Ltd
[1989] Ch 32.
Counsel for SEPA’s submissions
The first directions issue
[31] Mr Lake submitted that the Notice Obligations were not a debt owed to anyone.
They could not be enforced by private law action (cf Re Mineral Resources Limited [1999] BCC
422, per Neuberger J at p 433A; Joint Liquidators of Scottish Coal v Scottish Environment
Page 16 ⇓
16
Protection Agency, supra, per the Opinion of the Court at paragraphs 120, 146). Failure to
comply with the notices without reasonable excuse is a criminal offence (section 59(5)).
[32] For there to be an enforceable civil liability under section 59(6), a section 59(1) notice
has to be served; there has to be no successful appeal against the notice; there has to be a
failure to carry out the works specified in the notice; and SEPA has to carry out the works
and seek recovery of the expenses reasonably incurred in doing that.
[33] In the present case SEPA had not exercised its power under section 59(6) to carry out
remedial work. SEPA’s policy was to adhere to the polluter-pays principle. It had limited
funds. It was unable to bear the cost of the remedial work here. There would be no real
prospect of any significant recovery from the company were SEPA to do the work.
[34] The waste had been deposited before the liquidation date, but that was not sufficient
to create a legal relationship between the company and SEPA which was capable of giving
rise to civil liability. Civil liability to make payment to SEPA would arise only if there was
both service of section 59(1) notices and performance by SEPA of the remediation work.
Standing SEPA’s policies and limited resources it could not be said that at the liquidation
date there had been a real prospect of SEPA carrying out the works so as to give rise to
contingent debt. This is not a case where the criteria discussed by Lord Neuberger at
paragraph 77 of Re Nortel GmbH, supra were satisfied at the liquidation date.
[35] It follows that at that date the company did not owe a contingent debt to SEPA. The
first directions issue should be answered in the negative in relation to both the Notice
Obligations and the section 59(6) Recovery Liability.
Page 17 ⇓
17
Second directions issue
[36] A company’s private law obligations continue between the dates of liquidation and
dissolution though they might not be enforceable against the company by specific
implement (Asphaltic Limestone Concrete Co Ltd v Glasgow Corporation 1907 SC 463; Smith v
Lord Advocate 1978 SC 259; Joint Administrators of Rangers Football Club plc, Noters 2012
SLT 599). The statutory obligations of a company also continue during that period. The
section 59(1) notices imposed requirements on the company which arose (in the case of the
2015 notice) or continued (in the case of the 2012 notice) after the liquidation date. It is not
suggested that section 59(1) expressly or impliedly imposed personal liability on the Noters
to comply with the notice requirements. However, notwithstanding the liquidation the
company remains bound to comply with those requirements to the extent which it is
possible to do so with the company’s assets; and the Noters, as officers of the company in
liquidation, should see to it that the company does that. Therefore the second directions
issue should be answered in the affirmative.
The third directions issue
[37] The EPA was intended to give effect to the Waste Framework Directive. That
directive set out the polluter-pays principle. In characterising the nature of the liabilities
imposed by section 59(1) that principle should be kept clearly in view. In that respect the
exercise ought to be similar to the interpretation of domestic legislation which was intended
to implement an EU directive (Wicklow County Council v Fenton (No. 2) [2002] 2 IR 583; Pfeiffer
it may reasonably be concluded that the statutory intent was that funds so expended should
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be liquidation expenses in terms of Rule 4.66(1)(a), being outlays properly incurred in
carrying out the Noters’ functions as liquidators within the meaning of rule 4.67(1)(a). For
the UK to comply with its obligations under the directive there has to be an effective means
of requiring that those who deposit waste unlawfully bear the responsibility for its removal
and remediation. That is so even if the person becomes insolvent. Thus, in the event of
liquidation a company should continue to be obliged to carry out removal and remediation
of waste, and the expense involved should be a liquidation expense. Otherwise the polluter
would generally escape liability. Indeed, a company could enter voluntary liquidation in
order to escape its section 59(1) liabilities. Accordingly the third directions issue should be
answered in the affirmative.
Section 156 order
[38] In the event that the second and third directions issues are answered in the
affirmative, SEPA does not oppose the section 156 order sought by the Noters.
Decision and reasons
The order in which the directions issues should be considered
[39] Both parties proceeded on the basis that the first directions issue should be
considered first, and that if it is answered in the affirmative the second and third directions
issues do not arise. In my opinion that is not the correct approach.
[40] It seems to me that, strictly speaking, whether expenditure to comply with the Notice
Obligations would be a liquidation expense ought to be the prior question. In terms of
rule 4.66(1)(a), liquidation expenses are accorded the highest priority. The logical course is
to identify the highest priorities first. If satisfaction of a liability would be a liquidation
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expense it would be putting the cart before the horse to ask if the liability was a contingent
debt at the liquidation date. The enquiry could only be “On the hypothesis that satisfaction
of this liability would not be a litigation expense, was it a contingent debt at the liquidation
date?” An affirmative answer to that question would not be determinative of the issue
whether satisfaction of the liability would be a liquidation expense. The directions issues as
framed assume - wrongly, in my view - that it would be determinative of that issue.
[41] In my opinion the right approach is to enquire first whether there is a liquidation
expense. If there is, it is unnecessary to go on to consider the first directions issue. On that
scenario, because expenditure would qualify as a liquidation expense if it is in fact expended
by the liquidator, a creditor cannot also prove for a debt based on the liability which the
liquidation expense has met (even though, were the expenditure not a liquidation expense,
the underlying liability which it satisfied might have been a provable debt (In re Noretel
GmbH, supra, per Lord Neuberger at paragraph 57; In re ABC Coupler and Engineering Co Ltd
(No 3) [1970] 1 WLR 702)).
[42] In fact, because of the conclusions I reach below, the order in which the directions
issues are considered is not critical to the outcome of the present case. In light of that, and
because of the way matters were focussed in the submissions before me, (and in case the
views I express in paragraphs 39 to 41 are challenged if the case goes further), it is
convenient to deal with the directions issues in the order in which the parties have raised
them.
The first directions issue
[43] It is common ground that at the liquidation date the Notice Obligations were not a
debt of any sort owed by the company to SEPA. In my opinion that is correct. The company
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20
had a statutory obligation to comply with the 2012 notice, and it was susceptible to the
contingency that a more comprehensive notice (like the 2015 notice) would be served on it:
but it did not owe a debt to SEPA by virtue of the Notice Obligations.
[44] Was the position with the section 59(6) Recovery Liability any different? That
depends on whether that statutory source gave rise to a contingent debt in the
circumstances.
[45] At the liquidation date the 2012 notice had been served. In so far as potential
section 59(6) liability stemmed from work specified in the 2012 notice, it was contingent
upon (i) there being no successful appeal against the notice; and (ii) SEPA carrying out the
work required (following the company’s failure to do so) and SEPA seeking reimbursement
from the company.
[46] At the liquidation date the 2015 notice had not been served. In so far as potential
section 59(6) liability stemmed from work specified in that notice, it was contingent upon (i)
a section 59(1) notice being served; (ii) there being no successful appeal against the notice;
and (iii) SEPA carrying out the work required (following the company’s failure to do so) and
SEPA seeking reimbursement.
[47] The fact that some of the contingencies involve the exercise of discretion does not
preclude the conclusion that there was a contingent debt at the liquidation date. As Lord
Sumption observed in In re Nortel Gmbh, supra, at paragraph 179:
“179
... It is not a condition of the right to prove for a debt or liability which is
contingent at the date when the company went into liquidation that the
contingency should be bound to occur or that its occurrence should be
determined by absolute rather than discretionary factors.”
Lord Drummond Young made observations to similar effect in Liquidator of Ben Line Steamers
Ltd, supra, at paragraph 26:
Page 21 ⇓
21
“[26]
One further point calls for comment. Contingencies can arise from various
different sources. In many cases, an obligation will be contingent because it is
conditional upon the occurrence of some possible future event. In other
cases, an obligation may be contingent because someone has the power to
determine whether or not it is to be due, or to determine its amount. An
insurance policy is an example of the former; it is payable in the event that
the sum insured against happens. The classic example of the latter is a
guarantee payable on demand, which is payable in the event that it is called
up by the creditor. Another example is a call made on shares: Creswill (sic)
Ranche and Cattle Co Ltd v Balfour Melville [(1901) 9 SLT 356)]. The critical
point, illustrated by these examples, is that the contingency may arise from
the existence of a liability to the exercise of a power by another person.”
[48] Nor is it fatal to the existence of a contingent debt that two of the contingencies here
were dependent on the exercise of powers by SEPA. As Lord Drummond Young
emphasised at paragraph 37:
“[37]
... The critical point is that a contingency can be dependent on the exercise of
a power by the creditor in a contingent obligation, or indeed a third party; the
existence of such a power creates the correlative liability in the debtor. In my
opinion it is immaterial that the power involved is a “double” power, in the
sense that the creditor can exercise one power to enable itself to exercise a
second power: in this case, to exercise of power of amendment to enable the
making of a monetary claim. Both of those powers are contained within the
terms of the MNOPF scheme, and are contractually binding on the
company...”
[49] Mr Lake’s argument on this part of the case centres on the proposition that there was
not a contingent debt at the liquidation date because, he maintains, there was not a real
prospect of the company incurring section 59(6) liability. He says that, on a correct reading
of the test discussed by Lord Neuberger at paragraph 77 of In re Nortel GmbH, it has to be
shown that there was a real prospect that the relevant contingencies would be purified.
However, the reality here was that, as a matter of policy and because of budget constraints,
SEPA would not exercise its section 59(6) power to carry out the work itself.
[50] In In re Nortel Gmbh, supra, at paragraphs 75 - 77 Lord Neuberger opined:
“75 Where a liability arises after the insolvency event as a result of a contract
entered into by a company, there is no real problem. The contract, in so far as
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22
it imposes any actual or contingent liabilities on the company, can fairly be
said to impose the incurred obligation. Accordingly, in such a case the
question whether the liability falls within paragraph (b) will depend on
whether the contract was entered into before or after the insolvency event.
76 Where the liability arises other than under a contract, the position is not
necessarily so straightforward. There can be no doubt but that an
arrangement other than a contractual one can give rise to an “obligation” for
the purposes of paragraph (b)... As Lord Hoffmann said, (albeit in a slightly
different context) in relation to contingent liabilities arising on a liquidation,
those debts arose—whether by contract, statute or tort, voluntarily or by
compulsion—is not material’.
77 However, the mere fact that a company could become under a liability
pursuant to a provision in a statute which was in force before the insolvency
event, cannot mean that, where the liability arises after the insolvency event,
it falls within rule 13.12(1)(b). It would be dangerous to try and suggest a
universally applicable formula, given the many different statutory and other
liabilities and obligations which could exist. However, I would suggest that,
at least normally, in order for a company to have incurred a relevant
“obligation” under rule 13.12(1)(b), it must have taken, or been subjected to,
some step or combination of steps which (a) had some legal effect (such as
putting it under some legal duty or into some legal relationship), and which
(b) resulted in it being vulnerable to the specific liability in question, such that
there would be a real prospect of that liability being incurred. If these two
requirements are satisfied, it is also, I think, relevant to consider (c) whether it
would be consistent with the regime under which the liability is imposed to
conclude that the step or combination of steps gave rise to an obligation
under rule 13.12(1)(b).”
[51] Lord Neuberger was dealing with the language of the Insolvency Rules 1986 (since
replaced by the Insolvency Rules 2016). The relevant terms of the Insolvency (Scotland)
Rules 1986 are less detailed and somewhat different from the rules he was considering, but
neither party suggested that that was a material factor.
[52] I am mindful of the limited ambit of the hindsight principle. Where a contingent
debt exists at the liquidation date, application of the hindsight principle when the debt
comes to be valued may result in the value being higher or lower than it might otherwise
judgment of the Board of the Judicial Committee of the Privy Council delivered by
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23
Lord Hoffmann at paragraph 32; Liquidator of Ben Line Steamers Ltd, per Lord Drummond
Young at paragraph 23). However, the hindsight principle has no part to play in
determining whether a contingent debt existed at the liquidation date (Liquidator of Ben Line
Steamers Ltd, per Lord Drummond Young at paragraph 23).
[53] I turn then to the application of the test posited by Lord Neuberger at paragraph 77
of Nortel to the facts.
[54] So far as part (a) of the test is concerned, the unauthorised deposit of waste by the
company had very significant legal effects. By doing what it did the company placed itself
very firmly within the regime in Part II of the EPA, and, in particular, sections 33 and 59.
[55] Satisfaction of part (b) of the test is much more problematic. SEPA had limited
resources. Its policy was that the polluter should pay. The company was insolvent and if
SEPA were to do the remedial work it was highly unlikely that it would be reimbursed by
the company. In my opinion, on any common sense view of the circumstances at the
liquidation date there was not a real prospect of SEPA carrying out the necessary remedial
work in the future. There was not a real prospect of the company becoming liable to
reimburse SEPA.
[56] Moreover, in my view part (c) of the test is not satisfied. It was not consistent with
the section 59 regime that section 59(6) should give rise to a contingent debt in the
circumstances. On the contrary, as I shall explain later, in my opinion the section 59 regime
envisages that sums expended by a company in liquidation on section 59(1) remedial costs
should be a liquidation expense.
[57] It follows that the first directions issue falls to be determined in the negative both in
relation to the Notice Obligations and the section 59(6) Recovery Liability.
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24
The second directions issue
[58] Mr Lake made clear that he did not maintain that the Noters were personally obliged
to comply with the Notice Obligations. His submission was that the company remains
bound to comply with the Notice Obligations notwithstanding the liquidation. The Noters,
as the company’s responsible officers, should apply such funds as the company has towards
compliance with those obligations.
[59] In my opinion the company’s Notice Obligations do indeed continue
notwithstanding the liquidation. The real question, it seems to me, is what, if any, priority is
to be accorded to those obligations.
[60] Insolvency law determines the priority which the Noters should give to each of the
company’s debts and obligations. They are obliged to apply or distribute the company's
funds to meet expenses and debts in the order set out in rules 4.66 and 4.67. The critical
issue is where (if anywhere) in that waterfall of priorities does expenditure complying with
the Notice Obligations sit? Liquidation expenses are accorded a high priority
(rule 4.66(1)(a)). If expenditure complying with the Notice Obligations is a liquidation
expense falling within rule 4.67(1)(a) (as an outlay “properly chargeable or incurred by ...
the liquidator in carrying out his functions in the liquidation”) it would have priority over
the other categories of liquidation expenses in rule 4.67. It would also have priority over
preferential debts and ordinary debts. It follows that in order to decide whether the Noters
are obliged to incur remediation costs it is necessary first to determine whether such costs
are liquidation expenses. If they are not, the company’s ordinary debts have priority over
the Notice Obligations and those ordinary debts will exhaust the funds ingathered.
Consequently, the answer to the second directions issue is dependent upon the answer to
the third directions issue.
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25
The third directions issue
[61] In In re Nortel GmbH Lord Neuberger discussed the analogous position of
administration expenses at paragraphs 97-128. At paragraphs 100 and 111 he observed:
“100
...
111
... a disbursement falls within rule 2.67(1)(f) if it ... is imposed by a statute
whose terms render it clear that the liability to make the disbursement falls
on an administrator as part of the administration—either because of the
nature of the liability or because of the terms of the statute.
... In my view, the general guidance given by Lord Hoffmann in In re Toshoku
Finance [2002] 1 WLR 671 is to be found in para 46, where he said that “the
question of whether [any particular] liabilities should be imposed on
companies in liquidation is a legislative decision which will depend on the
particular liability in question”. In a case, such as the present, where (i) the
statutory liability is one which could have been imposed before or after
liquidation, (ii) the liability does not give rise to a provable debt (as is being
assumed for present purposes) and (iii) the statute is completely silent as to
how the liability should be treated if it is imposed after an insolvency event,
the liability can only be an expense of the liquidation or administration if the
nature of the liability is such that it must reasonably have been intended by
the legislature that it should rank ahead of provable debts. It would be
wrong to suggest that this is a test which may not need to be refined in future
cases, but it appears to me to be supported by the facts and arguments raised
on these appeals.”
[62] I agree with Mr Sellar that the language of section 59(1) of the EPA does not make it
clear that the liability to comply with a notice is a company obligation which the liquidator
requires to meet as part of the liquidation, and that the expenditure involved is to be a
liquidation expense. By contrast, in Joint Liquidators of Scottish Coal v Scottish Environment
Protection Agency and In re Toshuku Finance UK plc the applicable statutory provisions
expressly imposed liability on liquidators (see paragraphs 129 and 137 of Scottish Coal and
paragraph 2 of Toshuku; see also paragraphs 112-113 of Nortel).
[63] Accordingly, the critical issue here is whether the nature of the liability imposed by a
section 59(1) notice is such that it must reasonably have been intended by the legislature that
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26
expenditure by a liquidator complying with a notice should be a litigation expense (which
would therefore rank ahead of provable debts).
[64] The nature of the obligations which may be imposed by a section 59(1) notice are
obligations to remove waste which has been unlawfully deposited and to remediate damage
caused by that. Essential objectives of section 59(1) and of the Waste Framework Directive
are the protection of human health and the environment against harmful effects caused by
the collection, transport, treatment, storage and tipping of waste. The polluter-pays
principle is also one of the main objectives of the directive. That principle requires that the
costs of waste management be borne by the original waste producer or by the current or
previous waste holders.
[65] In my opinion, in characterising the nature of the relevant obligations regard should
be had to the aims and objectives of the directive which Part II of the EPA was intended to
implement. In that respect the approach is not dissimilar to that followed when domestic
legislation implementing an EU directive requires to be interpreted (Marleasing SA v La
Comercial Internacional de Alimentation SA [1993] ECR I-4135; Pfeiffer v Deutches Rotes Kreuz,
Kreisverband Waldshut, supra; Joint Liquidators of Scottish Coal v Scottish Environment Protection
Agency, supra, at paragraphs 142-144: see also Wicklow County Council v Fenton (No. 2), supra,
per Sullivan J at pp 56-60; Environmental Protection Agency v Neiphin, supra, per Edwards J at
paragraphs 101-105)). Viewing the nature of the liability imposed by a section 59(1) notice
through the prism of the directive which Part II of the EPA was intended to implement, I
conclude that it must reasonably have been intended by the legislature that expenditure by a
liquidator complying with a section 59(1) notice should be a liquidation expense. Otherwise
it is very likely that polluters who become insolvent would frequently escape paying for the
damage to the environment which their conduct has caused. I am not persuaded that the
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27
legislature intended that provable debts should have priority over expenditure by a
liquidator to comply with section 59(1) notice obligations.
[66] In Joint Liquidators of Scottish Coal v Scottish Environment Protection Agency at
paragraph 144, the Inner House thought there were persuasive factors in favour of giving
pre-eminence to the policy of maximising environmental protection over the policy of
expeditious and equal distribution of available assets among the unsecured creditors of an
insolvent company, and it endorsed observations to that effect by Neuberger J in Re Mineral
Resources Ltd at p 431. At first instance Lord Hodge also expressed agreement with
Neuberger J’s observations that there is a strong public interest in the maintenance of a
healthy environment, the remediation of pollution and the maintenance of biodiversity (Joint
Liquidators of Scottish Coal, Petitioners 2013 SLT 1055 at paragraph 51). I agree that these are
powerful arguments. I am not convinced that the courts in those cases were not equipped to
evaluate the issues which they did. Nor am I persuaded that in doing so they strayed
beyond the boundaries of their judicial competence and intruded into an area reserved to
the legislature. If in the present case it had been necessary to rely upon the persuasive
factors in favour of giving pre-eminence to the policy of maximising environmental
protection they may well have carried the day. I put the matter that way because in my
opinion the exercise upon which I am engaged does not involve weighing the relative
importance of protection of the environment on the one hand and the expeditious and equal
distribution of available assets on the other. The exercise involves the proper
characterisation of section 59(1) notice liabilities in an insolvency. The nature of those
liabilities indicates that they ought to be liquidation expenses, in my opinion. That
conclusion does not undermine the statutory scheme in rules 4.66 and 4.77. It clarifies where
such liabilities fit into the scheme.
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28
[67] I should deal with two other matters on which Mr Sellar placed some reliance. The
first was In re Celtic Extraction Ltd (in liquidation), supra. At paragraph 39 Morritt LJ (as he
then was) opined:
“39 ... There is nothing in the Directive to suggest that the "polluter pays"
principle is to be applied to cases where the polluter cannot pay so as to
require that the unsecured creditors of the polluter should pay to the extent of
the assets available for distribution among them. Yet this is the consequence
of the argument for the agency that the costs of compliance have priority over
provable debts and that the assets of the company must be set aside to pay for
future compliance with the terms of the licence before the company is
dissolved.”
I agree with Lord Hodge’s observation in Joint Liquidators of Scottish Coal, Petitioners, supra, at
paragraph 46, that EU law has been clarified since In re Celtic Extraction Ltd was decided. I
also find paragraph 39 of Celtic unpersuasive for other reasons. Where an insolvent
company has assets, in my opinion it is not correct to say that “the polluter cannot pay” and
that unsecured creditors of the polluter pay. Any assets are the company’s assets. They are
held by the liquidator to be applied to meet liquidation expenses and claims in accordance
with the statutory scheme. If meeting section 59(1) environmental obligations is a
liquidation expense then the company’s assets fall to be used for that purpose because the
expense has priority over creditors’ claims. That approach does not offend against the
statutory liquidation regime. On the contrary, it is entirely consistent with it.
[68] The other matter I should deal with is Mr Sellar’s warning that if section 59(1)
liabilities are a liquidation expense insolvency practitioners will not accept appointment as
liquidators. That, it was said, was for a number of reasons. The first was that section 59(1)
outlays would have priority over the liquidator’s claim for remuneration unless the court
ordered otherwise. Insolvency practitioners would not take the risk of the court refusing to
make such an order. Second, if contracts had to be entered into in respect of work relating to
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29
a section 59(1) requirement, in practice contractors would be likely to insist upon the
liquidator undertaking personal liability. Third, where, as here, the company’s assets are
insufficient for all section 59(1) work to be carried out, the liquidator would be in the
difficult position of having to decide which part of the required work ought to be done.
[69] Similar arguments were advanced by the liquidators in Joint Liquidators of Scottish
Coal v Scottish Environment Protection Agency (see paragraphs 78-79). It seems clear that the
court did not find them persuasive. Nor do I. An affirmative answer to the second and
third directions issues may make the task of liquidators more challenging than if they are
answered in the negative. However, I am not convinced that any of the suggested
difficulties would make the liquidation process unworkable. In my view there is no real risk
that the court would refuse to order that a liquidator’s remuneration be paid in priority to
section 59(1) expenditure if that is necessary to ensure that a liquidator would be
remunerated. In negotiating contracts a liquidator may be expected to safeguard his own
legitimate interests as well as those of the company. Decisions as to the ways in which
limited available resources ought to be used may be expected to be taken following
consultation with SEPA.
[70] For all of these reasons I conclude that the second and third directions issues should
be answered in the affirmative.
Section 156 order
[71] I am satisfied that the company’s assets are insufficient to meet its liabilities and that
it is appropriate to make a section 156 order providing that the Noters’ remuneration and
outlays are paid out of the assets in priority to the expenses of complying with the
section 59(1) notices.
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30
Disposal
[72] I shall put the case out by order for discussion of the precise terms of an appropriate
interlocutor to give effect to my decision and to hear submissions in relation to the expenses
of the proceedings. In the event that parties are agreed on those matters the by order
hearing can be dispensed with.