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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> JOSEPH ALEXANDER SWEENEY IN RELATION TO THE WINDING UP OF WEST LARKIN LTD [2020] ScotCS CSOH_6 (14 January 2020)
URL: http://www.bailii.org/scot/cases/ScotCS/2020/2020_CSOH_6.html
Cite as: [2020] ScotCS CSOH_6, 2020 GWD 4-64, [2020] CSOH 6
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Page 1 ⇓
OUTER HOUSE, COURT OF SESSION
[2020] CSOH 6
P345/19
OPINION OF LADY WOLFFE
In the Note
JOSEPH ALEXANDER SWEENEY
Noter
for
orders in terms of section 148(1) and 167(3) of the Insolvency Act 1986 in relation to the
winding up of
WEST LARKIN LIMITED
Noter: O’Brien; TLT LLP
Third Respondent: Sandison QC; Currie Gilmour & Co
14 January 2020
Background
Liquidation of the Company, the Property and the parties to this Note
[1] On 12 December 2018 this Court directed that West Larkin Limited (“the Company”)
be wound up and it appointed Alexander Iain Fraser as interim Liquidator (“the
Liquidator”). The Liquidator is called as the second respondent to this Note. The
Company’s only asset is a parcel of agricultural property (“the Property”) which has been
productive of a large number of disputes and lengthy litigations between members of
Sweeney and Urquhart families since about the late 1990s.
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2
[2] This is the second note presented in this liquidation by a member of the Sweeney
family. The first note was presented by Theresa Donalda Sweeney (“Mrs Sweeney”), the
mother of the Noter in this Note, Joseph Alexander Sweeney (“Mr JA Sweeney” or “the
Noter”). I shall refer to the first Note presented by Mrs Sweeney as “Note 1” and the Note
presented by Mr JA Sweeney as “Note 2” or “this Note”, as the context requires. Defined
terms have the same meaning in both Notes. The third respondent in this Note is Amanda
Urquhart (who was the creditor in the judgment debt enforced against the Company).
Orders the Noter seeks
[3] Put shortly, by this Note the Noter seeks to have himself recognised as a member of
the Company and to have the Liquidator directed to bring a challenge to the registration of a
“notice of interest” of the third respondent (and her mother) qua tenants of an agricultural
tenancy to acquire the Property under section 25 of the Agricultural Holdings (Scotland) Act
2003 (“the Notice” and “the 2003 Act”, respectively). ( While there are ancillary disputes
about the validity of one or all of the three notices the third respondent has registered under
the 2003 Act, for ease of reference I shall simply refer to the latest one as “the Notice”,
without prejudice to any arguments about the validity of it or any earlier notice.) If
effective, a notice under section 25 of the 2003 Act creates a statutory right of pre-emption in
favour of the tenant or tenants who registered the notice of interest (per sections 26 and 28 of
the 2003 Act), subject to any challenge by the landlord to the notice (as provided for under
section 25(8) of the 2003 Act) and provided that the notice has not lapsed (see section 25(12)
of the 2003 Act).
[4] The status in which the Noter ostensibly presents this Note is as a person entitled to
be recognised as a member of the Company. (That is greatly to simplify the background:
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the Noter has extensive averments in Statements 4 to 16 setting out the basis on which he
claims to be entitled to be treated as having remained a member of the Company,
notwithstanding the grant of a stock transfer form by him in 2005 (but said to be invalid on a
like basis as that relied on by the third respondent in other litigation (“the share register
litigation”)).
[5] In addition to rectification of the register of members of the Company, the Noter in
this Note also seeks an order under section 167(3) of the Insolvency Act 1986 (“the
1986 Act”)
“directing the Liquidator to challenge a purported notice under section 25 of the
Agricultural Holdings (Scotland) Act 2003 (“the 2003 Act”) which has been
registered in respect of the [Property]”.
The Noter also sought and was granted interim interdict against the liquidator contracting to
sell or otherwise disposing of the Property.
Scope of the debate
[6] The matter called before me for debate on a number of the third respondent’s pleas.
Quite properly, the Liquidator did not instruct any appearance at the debate. At debate, the
third respondent advanced two arguments:
1) Whether the Noter has qualified a sufficient interest to present the Note
(described by Mr Sandison QC, who appeared for the third respondent), as
“the minor issue” (and which was the subject-matter of her fifth plea-in-law);
and
2) Whether the Noter’s averments criticising the Liquidator’s refusal to
challenge the Notice are relevant and specific (“the section 167(3) argument”,
being the subject-matter of the third respondent’s sixth plea-in-law).
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Mr Sandison described (2) as the principal issue. While the first order the Noter seeks is for
rectification of the register of members to this effect, the debate before me sensibly focused
on the principal issue. For reasons that will become clear, I propose to deal with the
section 167(3) argument first. Other issues referred to in the parties’ Notes of Argument (eg
of personal bar or the arguments arising from the Noter’s sequestration and said to deprive
him of sufficient interest to present the Note) were not insisted in.
[7] As will become apparent, there is a very long history of enmity, punctuated by
litigation, between the Sweeney and Urquhart families. If the Notice is valid, then certain
pre-emption rights will be triggered in favour of the tenants (of which the third respondent
is one) of the agricultural tenancy (if it still subsists) to buy the Property valued on a
particular basis. If the Notice is invalid, as the Noter contends for a variety of reasons, then,
there would be no pre-emption rights and the Liquidator would be free to sell the Property
on the open market.
[8] I have had regard to parties’ Notes of Argument and the volume of authorities
provided in advance of the Debate. This Opinion is a slightly fuller articulation of the ex
tempore decision and reasons I provided to parties two days after the debate.
Discussion
[9] While parties agreed that a member of the Company has title to present an
application under section 167(3) of the 1986 Act, they did not agree that the Noter is either a
member or is entitled to be recognised as such; nor were they able to agree as to the proper
legal approach to the question of interest to present an application under section 167(3) of
the 1986 Act.
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The court’s approach to an application under section 167(3) of the 1986 Act
[10] In his full and careful submission Mr Sandison traced dicta from a well-established
tract of authority, from Leon v York-O Matic Ltd [1966] 1 WLR 450 (at pp 1453B to 1455H) to
and 21), which bracketed the other cases of Re Greenhaven Motors Ltd [1997] BCC 547 (at
pp 550G to 552H) and in the Court of Appeal [1999] BCC 463 (at pp 466F to 468D, 469G
International Plc (No 2) [1998] BCC 943 (at pp 960C to 961D to E). In short, on this tract of
authority the courts adopt a position of deference to certain decisions of liquidators, eg
concerning realisation of assets, with the effect that, absent cases of fraud or bad faith, the
court will only interfere with the act of the liquidator ‘if he has done something so utterly
unreasonable and absurd that no reasonable person would have done it’ (to paraphrase
Edennote Ltd) (“the Edennote test”). Mr Sandison noted that this remains the proper
approach of the court notwithstanding certain changes to the 1986 Act effected by the Small
paras 1 to 2, 14 to 21, 42 to 47, 50 to 52, 54 to 55, 60 and 66)).
[11] Counsel for the Noter, Mr O’Brien, did not challenge these dicta but he sought to
draw out two features from the case-law in support of the Noter’s application under
section 167(3). These two points may be summarised as follows:
1) Mr O’Brien noted that, on its facts, Edennote concerned a successful challenge
to a proposed assignation of the company’s interest in an action on the basis
that the liquidator had not offered to assign that interest to any other
interested party for a higher sum that might have been obtainable. Here,
there were two “special bidders” in the form of the Sweeney and Urquhart
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families who both demonstrably wanted the Property and who could be
presumed to bid more than a figure based on an agricultural valuation;
2) Mr O’Brien also noted the distinction in Re Buckingham International plc (No 2),
cit supra, at 960H (albeit taken from counsel’s submissions) between
(i) “practical decisions …. as to valuation and disposal” and
(ii) other decisions “involving the exercise of judgment as between
different creditors’ competing claims”.
In that case, the question was whether the effect of the grant of execution in the UK
of garnishment proceedings in the US would permit one set of creditors to “jump to
the head of the queue in priority to the general body of unsecured creditors”- ie a
decision that would fall into category (ii) of the distinction drawn. (If the case fell
within (ii), then the court could be more readily persuaded to apply its own
judgment.) The Court of Appeal accepted the distinction drawn in that case. In
doing so, it re-affirmed the general deference of the court to decisions of the
liquidators falling within category (i):
“When liquidators are exercising their administrative powers to realise assets,
the court will be very slow to substitute its judgment for the liquidators’ on
what are essentially a businessman’s decision (see Edennote Ltd at p 722).” Per
Robert Walker LJ at 961B-C.
.
Mr O’Brien seeks to extend the reasoning in that case to decisions of liquidators that
are “adjudication-like” decisions and which would, he suggested, require
modification of the accepted approach by the court under section 167(3) of the
1986 Act. (The modified approach would be that the court could consider matters de
novo and unconstrained by the usual deference to the liquidator.) Mr Sandison
resisted this line, arguing that the underlying dispute about the subsistence of an
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agricultural tenancy of Property could not be equiperated with a creditor’s claim or
an adjudication by the liquidator of the parties’ competing positions.
Context of the liquidator’s decision
The information available to the Liquidator anent valuation of the Property
[12] In assessing parties’ submissions I begin by noting the context in which the present
application is made. As explained more fully in Note 1, the Company was placed into
liquidation following a joint and several decree against it (and against Mrs Sweeney) for the
expenses arising out of the share register litigation. The Company’s only asset is the
Property, and which the liquidator avers in his Answers to this Note was valued at
around £27,000 as at May 2018. Mr O’Brien does not challenge that valuation. Mr Sandison
observed that the valuation was not “discounted” as a consequence of the agricultural
tenancy; the figure was simply the value of the Property valued as agricultural land.
[13] Mr O’Brien accepted that the land was not categorised in the local plan in a way that
would permit non-agricultural development (eg for residential development). It should be
noted that the Noter has not lodged any alternative valuation. While reference was made in
submissions to a valuation of some £1.5 million, Mr O’Brien confirmed that this was the
figure mentioned (in 2004) in the case report of one of the prior litigations between the two
families (see Urquhart v Sweeney 2006 SC 591) and, which so far as he was aware, was not
supported by any valuation report.
Factors relied on by the Noter for the purpose of the section 167(3) argument
[14] Despite Mr Sandison’s challenge in submissions for the Noter to “name his price”, as
it were, for the Property, on behalf of the Noter Mr O’Brien studiously declined to do so. All
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8
that he could offer was the characterisation of the two families as “special bidders” for the
Property. I proceed on the basis that, judged from a practical or commercial perspective,
therefore, there is no present development value on which the Liquidator could reasonably
rely which might be unlocked by the grant of planning permission for some non-agricultural
use or development.
[15] Mr O’Brien argues that the step to challenge the third respondent’s Notice is
“cheap”, simply entailing a letter to the Keeper. Mr Sandison’s reply is that any challenge so
initiated was bound to end up in the Land Court and that this Court should not speculate as
to what that tribunal, which was a specialist tribunal, would decide.
[16] Mr O’Brien also referred to the offer of the Noter’s brother, Owen Sweeney, to fund
any litigation in relation to that potential dispute. In response, Mr Sandison notes that this
is, in effect, a meaningless offer. Mr Sandison noted that it is not clear if this is an offer to the
Liquidator. Would Owen Sweeney thereby claim to be a creditor of the Company? Was it an
offer to indemnity all costs the Liquidator might incur? Was it open-ended? Would these
costs be paid before liquidation expenses? Would it cover the Liquidator’s costs if he were
unsuccessful? As dominus litus, would Owen Sweeney seek to direct that litigation? No
detail whatsoever is provided to test the genuineness of this offer. While there is reference
in the documentation to Owen Sweeney’s prior sequestration, I note that there is no
information produced to vouch his means to fund this offer, or even the estimated cost of
that litigation (either at first instance in the Land Court or, given the families’ appetite for
litigation, any appeal therefrom).
[17] Mr O’Brien invited the court to review the various reports and to conclude that there
was a strong case to challenge the Notice. Mr Sandison’s riposte is that every case is strong
if one only looked at one side and that, in any event, this court should not second guess a
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specialist tribunal. Somewhat inconsistently with that last submission, and under reference
to Fyffe v Esselmont (no 2) 2016 SCLR 14, Mr Sandison nonetheless invited the court to
consider how difficult it is in practice to prove abandonment of an agricultural tenancy.
Issues potentially arising in any challenge to the Notice
[18] Having regard to the pleadings in this Note, there is no doubt that any challenge to
the Notice will be robustly resisted.
[19] Among the matters the Noter raises in the pleadings in this Note are the following:
1) The absence of any tenancy disclosed to the Company prior to its acquisition
of the Property (Statement 21).
2) The scepticism in respect of a purported offer of let dated October 1990 for
25 years, but coupled with the contention that in any event that lease expired
in 2015 (Statement 22).
3) Regardless of the outcome of the litigation resulting in the Inner House
decision in 2004, the Sweeneys did not continue to occupy the Property in
reliance on the claimed lease; the Property was left derelict and abandoned;
in any event, the third respondent did not carry on an agricultural business
on the Property (having been a nurse from 2012 until 2015) (Statement 24).
4) Even if there were an agricultural tenancy in respect of the Property, the
Property lost its character as an agricultural holding prior to the expiry of the
lease in 2015, because the requirements for it to be a 1991 Act tenancy ceased
to be met before then (Statement 24A).
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5) The tenancy terminated on the expiry of the lease in October 2015 and that,
because there was for a period of time no validly appointed director of the
Company at the material time, tacit relocation could not operate to extend the
lease (Statement 25).
[20] The third respondent’s response to these challenges include the following
contentions:
1) Abandonment of agricultural use is not lightly inferred. If there has been
insufficient agricultural use at the material time, this was because the Noter’s
family thwarted such activity.
2) In respect of the Notices, the third respondent’s position is that each was
valid and duly intimated or, in any event, the Company is personally barred
from asserting their invalidity (having accepted rent) (Answer 27).
3) In relation to any challenge made to the Keeper, it is averred that if the
Keeper did rescind the registration of the Notice, the third respondent
“would immediately seek to appeal to the Land Court ... [and] the cost of any
challenge is likely to be substantial and may take a significant period of time
to conclude” (Answer 27).
4) In relation to the value of the property, the third respondent avers that “the
difference between the value of the property with and without the
agricultural tenancy is not so significant as to make it economically
worthwhile to challenge” (Answer 28).
[21] It is clear from the foregoing that the essential dispute between the Sweeney and
Urquhart families is whether the agricultural tenancy of the Property (which was the
question resolved in the litigation culminating in the decision of the Inner House in Urquhart
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v Sweeney, cit supra) – and of which certain members of the Urquhart family were then the
tenants- still subsists. The Noter argues that, by reason of the lack of relevant agricultural
use over many years, amounting to abandonment, a tenancy no longer subsists. For that
reason, the Noter argues that the Liquidator should challenge the Notice. The third
respondent’s position is to deny that a tenancy has been abandoned; rather, the tenant’s use
(or, at least, relevant agricultural use) of the Property has been thwarted by members of the
Urquhart family and, in any event abandonment requires positive steps amounting to an
inversion of use (ie positive use which by implication excludes agricultural use) and which
will not be inferred by reason of the interference of the Urquhart family. Central to this issue
is the question of whether the Property is “agricultural land” within the meaning of s 1(2) of
the Agricultural Holdings (Scotland) Act 1991 (”the 1991 Act”). On that matter, parties were
not agreed as to what had to be shown to establish that the Property was no longer
agricultural land in the 1991 Act-relevant sense; nor were they agreed as to the extent or
application of any exception to the statutory definition in cases where the tenant was (as is
asserted here) prevented from using the land in the required way. An incidental, perhaps
jurisdictional, question may arise as to whether the several challenges to the Notice are
capable of constituting “inaccuracies” within the Keeper’s powers to correct for the purposes
of section 25(9) and (10) of the 2003 Act.
The history of enmity between the two families
[22] It must be noted that the pleadings are littered with references to the numerous prior
litigations between members of the Sweeney and Urquhart families. The enmity between
the two families is evident from the averments. The third respondent avers, for example,
that the Noter’s family “has a history of dishonesty” and examples are drawn from
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litigations in 2010 and 2017 (Answer 9). It is also averred that the Noter and his family “seek
to benefit from their own illegal conduct towards the third respondent and her family over
many years”. There are references to incidents of harassment, intimidation and other
activities that “have severely hampered the ability of the third respondent and her family to
put the Property to the full range of agricultural uses to which it is suited”, and further
references to interdicts and complaints to the police and examples of vandalism by the Noter
(eg by the discharge of sewage thereby rendering “a large part of the Property unsuitable for
agricultural usage” (Answer 24).
[23] Even assuming that there is a strong case that an agricultural tenancy no longer
subsists in respect of the Property (and on which I express no view), the submission on
behalf of the Noter makes no allowance – as the liquidator must - for the time and cost that
will be required to achieve that outcome. Even if the Noter’s desiderated outcome were
achieved (ie that the Property was not subject to a statutory pre-emption in favour of a
member of the Urquhart family, and even if that challenge were funded by the Noter’s
brother, it is wholly unclear whether any material benefit (in the form of a higher realisation
value of the Property) would even be generated.
[24] In applying the Edennote test, it is important also to note the liquidator’s position, as
set out in his answers and in the email of 16 December 2019 provided to the Court on the
morning of the debate. In his Answers, the liquidator avers:
“Quoad ultra denied. Explained and averred that the second respondent’s refusal to
challenge the notice was reasonable, was taken in good faith and was in any event a
decision open to him in the lawful exercise of his powers under section 167 of the
1986 Act. The Keeper will generally not make a decision to rescind the registration of
a tenant’s interest in acquiring land unless there is an obvious material inaccuracy,
such as an error on the notice of interest as to who the landlord or tenant is, or if the
plan submitted with the notice of interest does not reflect the areas let. None of those
elements are here present. In circumstances where the underlying lease is being
challenged, the Keeper would not make such a decision without an order from the
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Court that the lease […] does not exist. The outcome of any such challenge is
uncertain. The history of litigation between the noter and parties connected with the
noter and the third respondent and parties connected with the third respondent is
such that it is reasonably anticipated by the second respondent that any such court
proceedings would be robustly defended. Significant cost and expense would be
incurred which might or might not be recoverable and even then, only in part. The
Company has no assets beyond the Property. The Property was valued in May 2018
at £27,000. There is no real prospect of assets being available to yield a substantial
return to the noter should such a challenge be made. Such a challenge would not be
in the interests of the general body of creditors of the Company.”
[25] While the Liquidator did not participate in the debate, he did provide further
information (by email dated 16 December 2019) the day before the debate. In particular, the
Liquidator confirmed the following:
1) He confirmed that he has not admitted any claims, other than for the purpose
of voting. He provided details of three claims (two by members of the
Sweeney family and one by a firm of accountants) totalling over £500,000.
2) More importantly he noted, that “there does not seem to be any recognition”
of the costs incurred by him as Liquidator. His work in progress stands
at £18,714 plus outlays of £5,356. As the Company is not registered for VAT,
then VAT would also fall to be applied. On a rough calculation these figures
bring out a VAT-inclusive figure between £27,000 or 28,000. However, the
Liquidator also noted that the legal fees incurred for the sale of the Property
and for this litigation had not yet been rendered, but that these expenses and
outlays also required to be included in the expenses of the liquidation.
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Determination of principal issue
[26] I begin by noting that the proper approach of the court is as articulated in the
Edennote test (see paragraph [10], above), namely, absent cases of fraud or bad faith, this
Court will only interfere with the act of a liquidator if he has done something so utterly
unreasonable and absurd that no reasonable person would have done it.
[27] In relation to Mr O’Brien’s argument based on the distinction drawn in Buckingham
between different types of decisions, I am not persuaded that the circumstances of this case
fall within the second category involving “an exercise of judgment as between different
creditors’ competing claims” (see para [11(2)], above). Consistent with his duty to realise the
assets of the Company (in order to pay the claims of creditors he has accepted or adjudicated
upon), the Liquidator has indicated his intention to sell the Property. The underlying
dispute between the two families is whether, given that intention, the third respondent is
entitled to exercise the statutory pre-emption by virtue of the Notice (assuming it is valid) or
whether that Notice is invalid, in which case, there may (or may not) be the bidding war the
Noter envisages. On no view is that underlying dispute – which can only be resolved
conclusively by the Land Court - to be equiparated with an adjudication, or an adjudication-
like determination, by the Liquidator. The issues concerning the validity of the Notice do not
provide the basis for a claim by the Noter qua creditor in the liquidation. In other words,
even if the Noter is successful in challenging the Notice, this does not give her status or
standing in the liquidation. From the perspective of the Liquidator considering disposal of
the Property, the issues forming the basis of the challenge may give rise to an incidental
question, namely whether he is free to dispose of the Property on the open market or
whether it is subject to a statutory pre-emption. On either hypothesis, this relates to the
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exercise of the very kind of power –realisation of an asset of the insolvent company- in
which the courts defer to the commercial judgment of the liquidator.
[28] Accordingly, applying the Edennote test and having regard to the principal objectives
of a liquidation, the Liquidator’s decision to decline to challenge the Notice was readily
explicable having regard to the valuation of the Company’s only asset (the Property) and the
costs already incurred in the liquidation. On that unchallenged information, there is bound
to be a shortfall in meeting the costs of the liquidation and it is unlikely there will be any, or
any significant, return to the Company’s creditors (once their claims are adjudicated on for
that purpose). The Noter did not engage with this fundamental reality and this omission is
not overcome by a funding offer beset by uncertainties made by the Noter’s formerly
sequestrated brother and in respect of whom no information as to his means (if any) was
provided to substantiate any such offer.
[29] Indeed, were the Liquidator to challenge the third respondent’s Notice, as the Noter
seeks, the Liquidator would be faced with a probable litigation of indeterminate (but not
short) duration fought between families with long-held antipathy towards each other.
Furthermore, as is apparent from the factors the Noter and third respondent have adverted
to in their pleadings concerning the validity of the Notice (see paras [19] and [20], above),
and the kinds of arguments to which these give rise (summarised in para [21]), this litigation
would be of unknown prospects, but of undoubted complexity of fact and law, and which
may or may not be funded on behalf of the Company by the Noter’s brother. In light of the
enmity between the families, the Liquidator’s surmise that any challenge to the Notice
would be “robustly defended” is a considerable understatement. More importantly,
however, even if a challenge to the Notice were successful, the outcome of this prospective
litigation remains entirely speculative as to whether the presumed competition between the
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two families (assuming any resources are left to them after any further Land Court
litigation) would generate even a minimal increase in the value realised upon a disposal of
the Company’s only asset. In these circumstances, the Liquidator’s refusal to challenge the
Notice is in my view eminently explicable. In any event, the Liquidator’s decision cannot be
said to be unreasonable in an Edennote sense. For these reasons, I determine the
section 167(3) issue in favour of the third respondent.
The minor issue
[30] My determination of the section 167(3) issue renders the minor issue academic. In
any event, the minor issue is superseded by my determination of the issues in Note 1.
Disposal
[31] It follows that the third respondent’s challenge to the Note succeeds and the Note
falls to be dismissed. I shall put the matter out By Order to discuss the terms of the
interlocutor. I reserve all questions of expenses meantime.