Scottish Civil Law Reports, issue 1, February 2015

Companies— Company director disqualification order Secretary of State for Business, Innovation and Skills v Hamilton (OH) 19

SCOTTISH CIVIL LAW REPORTS

Town and country planning— Conveyancing— Fish farm—Section 75 agreement Rectification of title Friends of Loch Etive v Argyll and Bute Council Rose Rivendale, Appellant (IH) 1 (OH) 52 Landlord and tenant— Windfarm—Whether permission competent Assignation of lease Trump International Golf Club Scotland Ltd v Homebase Ltd v Grantchester Developments Scottish Ministers (UKSC) 67 (Falkirk) Ltd (OH) 45 Limitation of actions— Relevant claim Highlands and Islands Airports Ltd v Shetland Islands Council (IH) 13

February 2016 2016 S.C.L.R. 1−88

Process— Right of audience—English counsel Taylor Clark Leisure plc v Commissioners for Her Majesty’s Revenue and Customs (IH) 38

2016 S.C.L.R. 1–88

Scottish Civil Law Reports Edited by Sheriff Michael J Fletcher Friends of Loch Etive v Argyll and Bute Council (OH) 52 Homebase Ltd v Grantchester Developments (Falkirk) Ltd (OH) 45 Highlands and Islands Airports Ltd v Shetland Islands Council (IH) 13 Rose Rivendale, Appellant (IH) 1 Secretary of State for Business, Innovation and Skills v Hamilton (OH) 19

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Taylor Clark Leisure plc v Commissioners for Her Majesty’s Revenue and Customs (IH) 38 Trump International Golf Club Scotland Ltd v Scottish Ministers (UKSC) 67

A COURT OF SESSION

16 April 2015

Inner House (Extra Division) Lord Brodie, Lord Bracadale and Lord Drummond Young ROSE RIVENDALE

Appellant

B

Conveyancing—Registration of title—Dispute as to precise boundary of property—Possession—Prescription—Whether proprietor in possession would be prejudiced The appellant attempted to register her title to a cottage in Argyll but it became apparent that there was a dispute as to the precise boundary of the property. The land in front of her house was registered as the property of the respondent, Lynne Elizabeth Clark. The appellant claimed that she was entitled to a significant area of ground which included a portion of a track which had been surfaced and which ran in front of her neighbour’s property.

She made application to the Lands Tribunal for rectification of the registered titles and by agreement the application was treated as an application for rectification of the respondent’s title, in such a way that the disputed area, including the portion of track, appeared in her own title. The Lands Tribunal found the appellant entitled to rectification of the respondent’s title to the extent that there should be removed from the latter title the strip of land approximately two metres wide conceded by the respondent. The tribunal further found that two further areas should be removed from the respondent’s title: a strip of land covered in grass lying between the conceded area and the edge of the track which currently ran in front of South Cottage and a small portion of roadway where the track had ‘migrated’ by distances of up to 0.65 metres from its original course. The tribunal therefore found in favour of the respondent on the main question and accepted the case for the appellant only in respect of two additional areas. The result was that the boundary of the two properties ran along the edge of the present track apart from the small area of road where the track had ‘migrated’. In respect of that area the tribunal found that the respondent was a proprietor in possession prejudiced by rectification. The appellant appealed against that decision contending that she was entitled to the larger area of ground extending over the track.

The appellant based her claim on prescriptive possession based on the terms either of the 1950 or 1960 title, without reference to the plan. Provided that the term of the grant had been such that they might have included the subjects claimed, the requisite possession of the subjects would confer title, even if the grant were equivocal. The general description in the dispositions of 1950 and 1960 together with the words “as occupied and possessed by” the tenant was capable of including the area that had been possessed in front of the cottage.

The respondent contended that she could demonstrate prejudice in respect of the triangular area and she relied in particular on prejudice in the form of the appellant’s ability to deny her access to the remainder of the property, which she might wish to develop further.

The appellant appealed against the decision of the Lands Tribunal on three grounds. (1) The tribunal erred in finding that the appellant’s title was not conceived in terms capable of being construed so as to convey the solum of the track ex adverso of South Cottage and was not habile to found title on that area of the track by positive prescription. (2) In relation to the respondent’s

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possession of the disputed area, the tribunal erred in finding: (a) that evidence of culverting a burn, which burn was not within the disputed area, could be used as an adminicle of evidence that could go to demonstrate possession of the disputed area; (b) in finding that additional slight personal use by the respondent was sufficient to establish possession in terms of s.9(3) of the Land Registration (Scotland) Act 1979; and (c) in finding that authorisation by the respondent of use of the disputed area by others, such as in widening and improving the track and removing a gate constituted possession. (3) The tribunal erred in their consideration of prejudice to the respondent, first, in finding that prejudice might be clear without the need for specific evidence, and secondly, in concluding in the abstract and without evidence that the respondent would suffer prejudice.

Held (1) that the Lands Tribunal was correct in having regard to the plan in determining the boundaries of the subjects conveyed to the appellant’s predecessor in title (para.25); (2) that the Lands Tribunal correctly concluded that the appellant’s title was not capable of being construed so as to convey the solum of the track ex adverso of South Cottage and was accordingly not habile to found the acquisition of title to that area by positive prescription (para.27); (3) that the tribunal were fully justified in reaching the conclusion that the respondent had demonstrated sufficient possession of the triangular area to render her a proprietor in possession and the totality of the acts of possession by the respondent had to be regarded as sufficient to satisfy the subsection (para.33); and (4) that the evidence accepted by the tribunal was sufficient for them to draw the inference that prejudice had been demonstrated by the loss of the triangular area (para.35); and appeal refused.

Cases referred to: Auld v Hay (1880) 7 R. 663 Currie v Campbell’s Trustees (1888) 16 R. 237 Kaur v Singh, (IH) 1998 S.C.L.R. 849; 1999 S.C. 180; 1999 S.L.T. 412 Luss Estates Co v BP Oil Grangemouth Refinery Ltd, 1987 S.L.T. 201 Reid v Haldane’s Trustees (1891) 18 R. 744 Safeway Stores plc v Tesco Stores Ltd, 2004 S.C. 29; 2004 S.L.T. 701 Tesco Stores Ltd v Keeper of the Registers, 2001 S.L.T. (Lands Tr) 23.

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The full circumstances of the case and the arguments of counsel are to be found in the following opinion of the court, which was delivered on 16 April 2015.

LORD DRUMMOND YOUNG [1] The appellant is the proprietor of South Cottage, Baluachrach, Tarbert, Argyll. She acquired the property in March 2010 and applied for registration of her title. It became apparent that there was a dispute as to the precise boundary of her property. The land in front of her house is registered as the property of the respondent, Lynne Elizabeth Clark, who since May 2007 has been the registered proprietor of a substantial area of ground at Baluachrach.

The respondent now concedes that a strip of land approximately two metres wide in front of South Cottage is the property of the appellant. The appellant, however, claims that she is entitled to a significantly larger area, which includes a portion of a track, now surfaced, that runs in front of South Cottage. She has made an application to the Lands Tribunal under s.9 of the Land Registration (Scotland) Act 1979 for rectification of the registered titles; originally her application was for rectification of her own title, but by agreement this has

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been treated as an application for rectification of the respondent’s title, in such a way that the disputed area, including the portion of track, appears in her own title.

[2] The Lands Tribunal found the appellant entitled to rectification of the respondent’s title to the extent that there should be removed from the latter title the strip of land approximately two metres wide conceded by the respondent. It further found that two further areas should be removed from the respondent’s title: a strip of land covered in grass lying between the conceded area and the edge of the track that currently runs in front of South Cottage; and a small portion of roadway where the track had “migrated” by distances of up to 0.65 metres from its original course. Thus on the main question the tribunal found in favour of the respondent, and accepted the appellant’s case only in respect of two additional areas. The result was that the boundary of the two properties ran along the edge of the present track apart from the small area of roadway where the track had “migrated”. In respect of that area the tribunal found that the respondent was a proprietor in possession who would be prejudiced by rectification. The appellant has appealed against that decision, contending that she is entitled to the larger area of ground extending over the track.

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The factual background

[3] The Lands Tribunal, after hearing evidence from a number of witnesses and carrying out a site inspection, found as follows.The locality of Baluachrach, which lies on higher ground to the south of the village of Tarbert, has been the subject of piecemeal development. A hard-cored track leads into the area in a north-easterly direction. To the left of the track are three cottages, the third of which is South Cottage. The frontage of South Cottage includes the cottage itself, a shed extension on the site of an old byre, and some further grassland on either side of an old wall. To the right of the track there is open space, and then a low wooden fence and a high hedge, on the other side of which lies a modern house, Mudheireadh, where the respondent lives.

[4] By two dispositions both dated 13 February and recorded in the General Register of Sasines on 21 February 1950 the then landowner, George Knight, disponed two cottages, South Cottage, Baluachrach, and West Cottage, Baluachrach, to their sitting tenants. The disponee of South Cottage was Catherine McQuilkan (erroneously named as Catherine McQuilken). The description in each disposition referred to the subjects as being delineated and coloured pink on a plan annexed. Unfortunately those plans were mixed up; the disposition of South Cottage had the plan for West Cottage and vice versa.

In 1960 the mistake about the plans was addressed in a corrective disposition of South Cottage, again executed by George Knight. The preamble to this deed narrated the error about the plans and that Mrs McQuilkan had reconveyed the subjects to Mr Knight so that he could grant a disposition de novo with the correct plan annexed. The description in the dispositive clause of the corrective disposition is in the following terms: “ALL and Whole that area of ground at Baluachrach, near Tarbert: . . . as occupied and possessed by the said Catherine McQuilkan the former tenant thereof, which subjects hereby disponed are delineated in red and coloured pink on the plan annexed and subscribed by me as relative hereto (a duplicate of which plan shall be recorded along with these presents in the Division of the General Register of Sasines applicable to the County of Argyll) but which plan, though believed to be correct, is not guaranteed. . . .”

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2016 S.C.L.R.

[5] The plan annexed to the 1960 disposition of South Cottage was substantially the same as that mistakenly annexed to the 1950 disposition of West Cottage.

The subjects, comprising the cottage, and adjoining extension (byre) and surrounding ground were delineated and shaded. Most of the ground was to the north and north-west of the buildings, but to the south-east of the cottage and byre a strip of ground to the front of the cottage was included. The width of that strip was in the region of 12–15 feet, curving slightly inwards towards the north-east to not more than ten feet. A double dotted line depicting a track lay immediately to the south-east, outside the subjects. That track led from and to other buildings and linked to other tracks to the north. The appellant’s title and her claim to the disputed area of ground are based on that disposition and plan.

[6] The respondent’s claim to the disputed area arises as follows. In 1955 Mr Knight conveyed the remainder of his property in Tarbert to a company known as English Farms Ltd, and in 1958 that company disponed land adjacent to South Cottage to Stanley James Macgregor-Smith, a predecessor in title of the respondent. The description in the 1958 disposition referred to a plan which showed the boundary of the subjects in the vicinity of South Cottage as adjoining the south-east walls of the cottage and its byre. The respondent’s registered title is based generally on the disposition in favour of Mr Macgregor-Smith, although the disposition in her favour, dated 16 March 2007, shows South Cottage and its adjacent store as they now exist. In the vicinity of South Cottage the area of land included in the respondent’s title is relatively narrow in width, and it leads in a north-easterly direction to a wider area of ground also included within the title. In 2009 the respondent sold ground lying to the north-east of South Cottage to a building company, which built two houses and sold these in 2010 and 2011. The dispositions in favour of the building company and the two purchasers included rights of pedestrian and vehicular access over the ground in front of South Cottage, but excluded a strip approximately two metres wide immediately to the front of the cottage.

[7] The tribunal narrated the history of South Cottage, about which they heard considerable evidence. It had been occupied by members of the same family between 1950 and 2006/07. During much of that period there had been no well-defined track in front of the cottage, but merely well-compacted grass down to a burn situated approximately five or six metres from the house.

Although the cottage had more extensive garden ground to the side and rear, the front was the sunny side, which made it a natural area for sitting out. The area as far as the burn had been used by the owners of South Cottage from time to time for that and other purposes. It was also at times used for pedestrian access to the ground to the north-east. Until the 1980s there had been another old cottage a short distance to the north-east, but when the last member of the occupying family died the cottage fell into ruin. The disputed land was used by the occupiers of that cottage and their visitors.

[8] The appellant purchased South Cottage with entry in March 2010 with a view to renovating it extensively; it had been vacant since 2006 or 2007. She thought that she owned the ground at the front, and started making use of it in various ways which quickly attracted opposition from the respondent. She erected a gate across the track running past the cottage, but this was removed within a day or so by persons acting on behalf of the respondent. She also strimmed the grass on both sides of the track. At about the same time the two new houses to the north-east were constructed, and vehicular traffic involved in the work passed along the track after March 2010. The dispute appears to have arisen against that background.

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Rose Rivendale, Appellant (IH)

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Lands Tribunal’s interpretation of the titles Location of track

[9] The tribunal noted that a central factual issue in dispute was whether the track as it currently exists is located on the ground on which a track is depicted on the title plans. They concluded that the plans disclosed that a strip of ground to the front of South Cottage approximately ten to 15 feet wide was included in the appellant’s title. The location of the track shown on the plan annexed to the title was imprecise. The disposition did not guarantee the plan, but the plan had been professionally prepared and the deed stated that it was believed to be correct. The tribunal also carried out a site inspection, which indicated a similarity in general shape of the course of the present track and that shown on the plans. Neither the shape nor the measurements shown on the plans appeared to fit a track located further out from South Cottage.

Further to the east there was a small rocky mound, which made a track unlikely in that direction. The tribunal reviewed the oral evidence that they had heard at some length.

[10] In the light of that evidence the tribunal held that the current track lies generally on the same ground as the track shown in the plan annexed to the 1960 disposition, but it is wider and follows a straighter course in the vicinity of South Cottage.They found that the edge of the current track is approximately 0.65 metres closer to the southmost gable of the cottage, approximately 0.27 metres closer to the gable between the cottage and the store, and approximately 0.3 metres closer to the north end of the front wall of the store. That conclusion was based essentially on the 1960 plan, which was available as evidence of what was understood to be the extent of the tenancy and therefore intended to be conveyed to the appellant’s predecessor in title, Mrs McQuilkan. On that basis an inaccuracy had been established in the respondent’s 1958 foundation title, which cannot have disponed the land immediately in front of South Cottage, as shown in the plan annexed to the 1958 disposition.

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Prescription

[11] The appellant’s claim was founded on prescriptive possession, based on the terms of either the 1954 [sic] or the 1960 title, without reference to the plan. The argument, based on Auld v Hay, was that provided that the terms of the grant were such that they might include the subjects claimed, the requisite possession of the subjects would confer title, even if the grant were equivocal.

The appellant contended that the general description in the dispositions of 1950 and 1960 in favour of Mrs McQuilkan, together with the words “as occupied and possessed by” the tenant, was capable of including the area that had been possessed in front of the cottage. The disposition contained a general description, “as occupied and possessed by the tenant”, and the plan was not guaranteed. Consequently the dispositive clause ruled; the plan was not taxative and was thus of little or no weight. That was sufficient to create a title that was habile for prescription of the disputed area.

[12] The tribunal indicated that they had not found the question whether the title was habile to found prescriptive possession altogether easy. Although there was some force in the appellant’s argument, they concluded that regard should be had to the plan in determining the extent of the subjects conveyed.

The description of the subjects referred to the plan as indicative of not just the precise measurements, which it did not guarantee, but also the extent of the tenanted subjects being conveyed. Thus the plan could not simply be ignored.

It was the way in which the title indicated the extent of the tenancy and

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therefore of the grant. The plan showed an intention not to include the solum of the track. Furthermore, it seemed understandable that the estate owner would not grant a tenancy, as against a right of access, over such an access route; nor was it likely that on selling to a sitting tenant the owner would leave himself with only access rights. Thus nothing in the wording of the dispositive clause justified ignoring the clear limitation in the plan on the extent of the subjects conveyed.

[13] Nevertheless, the tribunal accepted that the appellant’s title included the area up to the approximate boundary of the track; that was covered by the dispositions, including the plan. Furthermore on the oral evidence the area between the track and the house appeared to have been understood as part of Mrs McQuilkan’s tenancy, and there was sufficient possession for prescription to operate in respect of that area.

Whether the respondent is a proprietor in possession who would be prejudiced by rectification

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[14] The foregoing finding required the tribunal to consider whether the respondent was a proprietor in possession who would be prejudiced by rectification; if so, rectification could only be granted in the situations listed in s.9(3) of the 1979 Act. In the present case the tribunal did not think that the question could be answered simply by looking at the area of ground covered by the inaccuracy and then deciding who was in possession of that area. In the particular circumstances two different types of use and enjoyment were involved: use as the garden ground of South Cottage and use as an access track to the land lying to the north-east. On that basis the issue of possession was substantially a question of finding where one of these ended and the other began.

[15] The tribunal concluded that the area of ground up to the edge of the current track was part of the garden ground of the cottage and not part of the track. The respondent had conceded that flower beds situated immediately in front of the cottage were the appellant’s property, and the tribunal thought that the area of grass up to the track was in the same position. It found that the respondent had not been in possession of that area at the time of the application for rectification, nor previously. Apart from one occasion when a contractor employed by the respondent had removed a short section of wall at the south gable end of South Cottage, the evidence did not disclose any significant use or enjoyment of the area of grass between the cottage and the track by the interested party. Nor could it be said that that area had been used to obtain access to the land lying to the north.

[16] There remained a triangular strip where the current track was straighter than the track shown in the plans. This was a small area, tapering from a width of 0.65 metres down to nil. The evidence of possession of that area by the respondent was as follows. In 2009 the respondent had granted an access right over this area to the building company that built two houses to the north-east.

The building company had hard-cored and surfaced the track in that area.

The respondent had conferred access rights on the purchasers of the houses.

In order to facilitate the improvements to the track, the respondent had employed contractors to culvert a burn that lay on the other side of the track from South Cottage. Thus the land to the north-east had been developed and the track had come into use as an access road to that land in reliance on rights over the triangular area. The respondent had retained ownership of ground further to the north, and she also reserved a right of access over the track for herself as such owner. She also made limited direct use of the track, in that she

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occasionally walked her dog along it. She had in addition had a gate placed across the track by the appellant removed almost immediately.

[17] The tribunal held that those actings were sufficient to render the respondent a proprietor in possession in respect of the triangular strip.

They thought that the fundamental policy consideration was protecting registered proprietors who themselves physically use and enjoy the subjects, although that must be extended to some extent to protect, for example, a company owner. The issue of possession was a matter of fact and degree in the particular circumstances. In the present case the respondent did sufficient to establish possession of the track, including the triangular area, and her possession persisted at the material time. Her culverting of the burn, through contractors, appeared to be sufficiently related to taking control of and possessing the track, even though the burn was not situated within the area in dispute. In addition the respondent had made some slight personal use of the track, and had allowed its widening and improvement. She had also had the gate placed by the appellant removed, which served to confirm her possession of the track.

[18] The tribunal further held that the respondent was able to demonstrate prejudice in respect of the triangular area. Prejudice might be clear without the need for specific evidence. The respondent had relied in particular on prejudice in the form of the appellant’s ability to deny her access to the remainder of her property, which she might wish to develop further. The tribunal considered that to be clear prejudice. While the loss of the triangular area would only narrow the track slightly at the relevant point, that would still constitute prejudice. Thus in respect of that area the appellant was not entitled to rectification of the respondent’s title.

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D The appeal

[19] The appellant has appealed against the decision of the Lands Tribunal on four grounds, although in the event only three of those were insisted in. Those three grounds are as follows: 1.

2.

3.

The tribunal erred in finding that the appellant’s title was not conceived in terms capable of being construed so as to convey the solum of the track ex adverso of South Cottage, and was not [n]ot habile to found title to that area of the track by positive prescription.

In relation to the respondent’s possession of the disputed area, the tribunal erred in finding: (a) that evidence of culverting a burn, which burn was not within the disputed area, could be used as an adminicle of evidence that could go to demonstrate possession of the disputed area; (b) in finding that additional slight personal use by the respondent was sufficient to establish possession in terms of s.9(3) of the Land Registration (Scotland) Act 1979; and (c) in finding that authorisation by the respondent of use of the disputed area by others, as in widening and improving the track and removing a gate, constituted possession.

The tribunal erred in their consideration of prejudice to the respondent, first, in finding that prejudice might be clear without the need for specific evidence, and secondly, in concluding in the abstract and without evidence that the respondent would suffer prejudice.

E

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The appellant’s title

[20] The first submission for the appellant was that her title, as constituted by the disposition of 1960 in favour of Catherine McQuilkan, was habile to include

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2016 S.C.L.R.

the solum of the track in front of South Cottage. On that basis the appellant and her predecessors in title could have acquired right to that part of the track by positive prescription. The Lands Tribunal had been in error in treating the plan annexed to the disposition as indicating the boundaries of the subjects conveyed.

The plan was not taxative; the wording of the dispositive clause indicated in terms that it was not guaranteed. Thus the usual rule, that the dispositive clause is decisive and conclusive, should have ruled: Halliday, Conveyancing Law and Practice (2nd edn), para.4–27; Hume, Lectures, IV.134. On that basis the plan should have been ignored. Moreover, the plan was according to the terms of the dispositive clause only “believed to be correct”, which meant that it might also be incorrect. That meant that the track might lie within the subjects conveyed, in which case the deed could be regarded as habile for the purposes of prescription: Reid and Gretton, Conveyancing 2013, p.46.

[21] In our opinion this argument is not well founded. The critical question arises out of the wording of s.1(1) of the Prescription and Limitation (Scotland) Act 1973, which refers to possession founded on and following “the recording of a deed which is sufficient in respect of its terms to constitute in favour of (the person exercising possession) a title to (an interest) in land of a description habile to include the particular land”. The critical question is accordingly whether the description of the land conveyed to the appellant’s predecessor in title is “habile” to include the area of track in front of South Cottage. For this purpose we consider that it is the 1960 disposition that must rule, and not the 1950 disposition. We reach this conclusion for two reasons. First, the 1960 disposition, as its terms indicate, followed a reconveyance of the subjects by Catherine McQuilkan to George Knight, the granter. Thus the effect of the 1950 disposition was undone before the 1960 disposition was granted, and any possession thereafter must have followed of the 1960 disposition. Secondly, the 1960 disposition was granted, and expressly records, that the reason for the reconveyance was the erroneous attachment of an incorrect plan to the 1950 disposition. Thus the clear intention was that the 1960 disposition should regulate the disponee’s rights in the future.

[22] The dispositive clause of the 1960 disposition is in the terms stated at para.4. It contains three elements. The first of these is a reference to the area of ground “occupied and possessed” by Catherine McQuilkan, the former tenant. The second is a statement that the subjects disponed “are delineated in red and coloured pink on the plan annexed and subscribed by me as relative hereto”. The third is a statement that that plan “though believed to be correct, is not guaranteed”. If the first of these had stood by itself, the title would not be a bounding title and the disponee and her successors could unquestionably have established title to the solum of the track by prescriptive possession. It is followed, however, by the second element, which indicates that the subjects possessed by the former tenant and disponed by the disposition are delineated in red and coloured pink on an annexed plan. In our opinion that reference to the plan must have a purpose. First, the general rule is that so far as possible the full wording of a clause in a disposition should be given effect, and the reference to the plan is an integral part of the description of the subjects in the dispositive clause. Secondly, the plan in question was professionally prepared, and for that reason it appears to be intended to fulfil a significant role in the disposition. Thirdly, and most importantly, without the plan the disposition was completely imprecise as to the subjects conveyed, and the obvious purpose of incorporating a plan was to denote the extent of those subjects. The reference would have no point otherwise. The dispositive clause must in our opinion be construed in the light of that clear objective.

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[23] The reference to the plan is followed by the statement that, although believed to be correct, it was not guaranteed. The lack of a guarantee serves the obvious purpose of excluding warrandice in respect of the precise boundaries shown on the plan. That in our opinion is all that it is intended to achieve.

Moreover, the lack of warrandice can only extend to aspects of the boundaries; the core of the subjects conveyed, the building itself, would in our view clearly be covered by the warrandice clause in the disposition. It is no doubt true that if a plan is only “believed to be correct” it may be incorrect, as Professors Reid and Gretton indicate: Conveyancing 2013, p.46. Nevertheless this consideration is in our opinion outweighed by the factors discussed in the last paragraph: the reference to the plan must serve a purpose, and its purpose is to denote with reasonable accuracy the extent of subjects conveyed. Professors Reid and Gretton observe that the standard formula of declaring the plan “demonstrative not taxative” was not used; had it been, it would clearly have been correct to have regard to the boundaries on the plan because even a demonstrative plan is intended as an accurate description of the subjects conveyed, albeit one that can be overridden by the verbal description in the dispositive clause. Although that wording is not used, we are of opinion that when the present dispositive clause is read objectively its intention must be the same as if such a declaration had been made: “taxative” means, in practice, that the delineation in the plan is guaranteed, and the wording used in the present disposition is designed to exclude a guarantee. The result is that in the present disposition the plan demonstrates the boundaries of the subjects without guaranteeing them.

[24] The foregoing considerations are in our opinion supported by the circumstances that surrounded the grant of the disposition in 1960. George Knight, the disponer, retained an area of land to the north-east, and the configuration of the land was such that the access to the area to the north-east lay along the track in front of South Cottage. There were, as the Lands Tribunal observed, difficulties in moving the track away from South Cottage, because of the existence of a burn and small rocky mound to the east of the track (see para.9). The disponer might obviously wish to make use of the land to the north-east, whether by development or otherwise. In these circumstances we agree with the tribunal that it is unlikely that he would have disponed the track without at least reserving a right of access. There is, however, no such reservation in either the 1950 or the 1960 disposition.

[25] For these reasons we are of opinion that the Lands Tribunal were correct in having regard to the plan in determining the boundaries of the subjects conveyed to the appellant’s predecessor in title. We were referred to a number of cases in the course of submissions, and in our opinion these support the view that we have reached. The most salient case is Luss Estates Co v BP Oil Grangemouth Refinery Ltd, where the heritable proprietors of a barony sought declarator that they were the proprietors of a stretch of foreshore ex adverso of lands that had passed to the defenders. The feu contract in favour of the defenders’ predecessors described the relevant boundary as “by the shore of Loch Long”, until it joined the mouth of a particular burn, and acreage and measurements were given. The deed then continued: “As the same has been measured, and staked out, and is delineated on a plan or sketch of said lands made out by (a named surveyor) and signed by the parties”. The relevant principle of construction was expressed as follows (LP Emslie at p.205B–C): “Where, however, the subjects conveyed are not merely described in such simple general terms and where, as in this case, a reference to the shore as a boundary is accompanied by references to the area of the grant, to staking

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out and measurement, and to a plan, the question whether the foreshore is or may be included in the grant, or is excluded from it, must be answered upon a proper construction of the dispositive clause as a whole.”

The feu contract contained indications that the seaward boundary of the land conveyed was the high-water mark (at p.205G–I), and these were confirmed by the plan. Comparison of the seaward boundary shown on the plan (even if the plan were regarded only as a sketch) with the 1865 Ordnance Survey map showed that the shape coincided to a quite remarkable degree with the shape of the shoreline at the high-water mark; it bore no resemblance at all to the line of the low-water mark that appeared on the map. Furthermore the plan was not merely a sketch; it properly fell to be regarded as a plan, and indeed it had been used in calculating areas (LP Emslie at p.205I–L; Lord Cameron at p.207B–C). While the particular wording of the description in that case was different, it is clear authority that a court or tribunal can properly have regard to a plan in determining whether land is excluded from a title, in a case where the description in the dispositive clause consists both of the terms of the clause and a plan that is expressly referred to in the clause.

[26] Reference was also made to Currie v Campbell’s Trustees, a case where there was a degree of disconformity between the description given in the text of a feu contract and a plan or sketch annexed to the deed. LJC Macdonald indicated (at p.240) that if there were an inconsistency the description given in the feu contract must prevail over the sketch; Lord Rutherford Clark and Lord Lee, however, held (at pp.241–242) that on the matter at issue in the case there was no conflict between the words of the description and the plan.

In the present case we do not consider that there is any conflict between the words of the dispositive clause and the plan: indeed, it is the plan that gives substance to the dispositive clause. In Reid v Haldane’s Trustees, it was held competent to refer in evidence to a plan that had at one time passed with the titles of one party. The import of the case, however, is confined to using a plan in evidence; in the present case the plan is expressly referred to in the dispositive clause of the disposition.

[27] We accordingly conclude that the Lands Tribunal correctly concluded that the appellant’s title was not capable of being construed so as to convey the solum of the track ex adverso of South Cottage, and was accordingly not habile to found the acquisition of title to that area by positive prescription. We should note in passing that the appellant’s grounds of appeal included an argument that reference in the final part of the dispositive clause to “parts, pendicles, rights and pertinents” could be used in construing that clause in such a way as to include the track. It was ultimately conceded, however, that the reference to “parts and pertinents” is otiose when there is a general, as opposed to bounding, description. We are of opinion that that concession is clearly correct, and we do not think that the reference to “parts and pertinents” is of assistance in determining the scope of the dispositive clause.

[28] The remaining issues raised by the appeal related to whether the respondent could demonstrate possession of the disputed area for the purposes of s.9(3) of the Land Registration (Scotland) Act 1979 and whether rectification affecting the triangular area of ground referred to in para.16 above would cause prejudice to the respondent. We now turn to these issues.

Respondent’s possession of disputed area

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[29] The appellant makes a number of specific criticisms of the Lands Tribunal’s approach to the respondent’s claim to possession of the disputed

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Rose Rivendale, Appellant (IH)

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area of ground. If we had held that the appellant’s title was habile to include the whole of the disputed area of ground, this issue would have applied to the whole of that area. In the event, in view of our decision on the extent of the appellant’s title, the issue only applies to the triangular area of ground referred to in para.16. A number of criticisms were made. In summary, these amounted to a submission that the various acts founded on by the respondent as constituting possession were insufficient. First, it was said that the culverting of the burn, which lay outside the disputed area on the side away from South Cottage, could not be used as an adminicle of evidence of possession.

Furthermore, the culverting work was carried out by contractors, not by the respondent herself. Secondly, it was said that personal use by the respondent herself was insufficient to amount to possession of the disputed area; her evidence was that she occasionally strimmed the grass in the disputed area and walked her dog along it. Thirdly, it was submitted that the respondent’s authorisation of use of the disputed area by others, as by widening and improving the track and removing a gate, could not constitute possession by her, as they lacked the necessary corpus for possession. Fourthly, although this submission was not foreshadowed in the grounds of appeal, it was said that use of the area of roadway as an access track was insufficient because that was equally consistent with a servitude right of access and ownership. It therefore could not amount to an act of possession as owner.

[30] In our opinion these submissions are unfounded. First, the fact that individual acts, such as strimming or walking a dog, may not by themselves be enough for possession is immaterial; the critical question is the total picture, and these individual acts are merely adminicles of the evidence that builds up that total picture. The same is true of the culverting of the burn. While the burn was to one side of the disputed area, the tribunal held that the work was related to the surfacing of the track. That means in our opinion that it too may be regarded as an adminicle of evidence of possession. Similarly, we consider that the respondent’s permitting the widening and surfacing of the track itself evidenced possession, as did the respondent’s arranging for the removal of the gate put up by the appellant; the critical point there is that the removal of the gate was not challenged by the appellant.

[31] Secondly, the fact that a particular act such as the use of a roadway is consistent with both exercise of a servitude right of access and possession as owner is immaterial. It is not essential that possession be unequivocally referable to ownership and nothing else. Once again, the total picture is important. Consequently if an act can reasonably be construed as involving possession qua owner, it may be taken into account with the various other adminicles of evidence to the same effect. Ultimately all of the individual pieces of evidence must be taken together to discover whether they yield a reasonable inference that the possession was referable to ownership. That in our opinion is what the tribunal did in the present case.

[32] Thirdly, possession for the purposes of s.9(3) may in our opinion be exercised through contractors. The purpose underlying s.9(3) is to confer protection from rectification on a registered proprietor who is in possession of a particular area of land. The assumption is that in other cases a financial indemnity will suffice to compensate him for the loss of his rights, but where there is possession of the land financial compensation will not be enough: see Kaur v Singh at p.194A–B. In this context we do not consider it necessary that the acts of possession should be the personal acts of the individual or other legal person who claims to be a proprietor in possession. Indeed, in the case of a corporate owner this would not be possible, as a corporation must inevitably

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act through agents. The same is true of other types of proprietor; an example is a case where a house is held by testamentary trustees for behoof of the testator’s widow in liferent and children in fee. In such a case it appears to us that possession by the widow and liferentrix must be treated as possession by the owners, the trustees. Otherwise the underlying purpose of s.9(3) could not apply to such a case. Consequently we consider that the acts of servicing the track and removing the gate may be regarded as evidence of possession, even though they were carried out by contractors.

[33] The Lands Tribunal concluded that the respondent had demonstrated sufficient possession of the triangular area to render her a proprietor in possession within the meaning of s.9(3). They did so under reference to the decision in Safeway Stores plc v Tesco Stores Ltd at paras 78, 82. We are of opinion that the tribunal were fully justified in reaching this conclusion on the basis of the evidence narrated by them and the facts as found by them. The totality of the acts of possession by the respondent must in our opinion be regarded as sufficient to satisfy the subsection. In this connection we think that the surfacing of the track and associated works are of particular importance, as they involved significant and permanent changes to the disputed area of ground. As we have indicated, the fact that the work was carried out by a contractor is not relevant. We accordingly reject this ground of appeal.

Prejudice to respondent

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[34] The last ground of appeal was that the Lands Tribunal were in error in their assessment of prejudice to the respondent in two respects: first, in finding that clear prejudice might exist without any specific evidence to that effect, and secondly, in concluding without evidence that the respondent would suffer prejudice. The respondent had led no evidence on actual prejudice suffered by her. Furthermore, she had granted access over the disputed area and her other actings there were so minimal that they could not amount to prejudice.

[35] In our opinion this argument is misconceived. Section 9(3) requires prejudice, but it is not stated that the prejudice must be material. Thus in Tesco Stores Ltd v Keeper of the Registers at p.37H–I, the Lands Tribunal stated that “an effect which produces loss of heritable rights can be described as being to the prejudice of the proprietor of those rights at least when these rights have some identified value”. We agree with that view, which was referred to by Lord Osborne in Safeway Stores plc v Tesco Stores Ltd at para.59. In respect of the triangular area, if the solum did not belong to the respondent, it would be competent for the appellant to remove that area of track, which would substantially impair its utility as a means of access. It is also quite possible that loss of that area might lead to a dispute with the owners of the two plots to the north where houses have been built. In all the circumstances we consider that the evidence accepted by the tribunal was sufficient for them to draw the inference that prejudice had been demonstrated by the loss of the triangular area.

Conclusion

[36] For the foregoing reasons, we are of opinion that the arguments for the appellant must be rejected. We will accordingly refuse the appeal.

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For the appellant: Mitchell QC, Burr, instructed by Drummond Miller LLP, Solicitors, Edinburgh.

For the respondent: McIlvride QC, instructed by Anderson Strathern LLP, Solicitors, Edinburgh.

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A COURT OF SESSION

21 April 2015

Inner House (First Division) Lord President (Gill), Lord Menzies and Lord Drummond Young HIGHLANDS AND ISLANDS AIRPORTS LTD

Pursuer (Respondent)

B

against SHETLAND ISLANDS COUNCIL

Defender (Reclaimer)

Limitation of actions—Relevant claim—Pursuer raising action of declarator that defender in breach of contract and liable in damages without a conclusion for specific damages—Whether “relevant claim”—Prescription and Limitation (Scotland) Act 1973 (c.52), ss.6, 9 C

Words—”Relevant claim” Section 6 of the Prescription and Limitation (Scotland) Act 1973 provides, inter alia: “ ‘Extinction of obligations by prescriptive periods of five years (1) If, after the appropriate date, an obligation to which this section applies has subsisted for a continuous period of five years— (a) without any relevant claim having been made in relation to the obligation, and (b) without the subsistance of the obligation having been relevantly acknowledged, then as from the expiration of that period the obligation shall be extinguished. . . .”

Section 9 of the 1973 Act provides, inter alia: “Definition of ‘relevant claim’ for the purposes of sections 6, 7 and 8 (1) In sections 6 [7 and 8 A] of this Act the expression ‘relevant claim’ in relation to an obligation, means a claim made by or on behalf of the creditor in implement or part-implement of the obligation, being a claim made— (a)

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in appropriate proceedings. . . .”

The pursuer raised an action containing conclusions for declarator that the defender was in breach of its contract with the pursuer for the provision of professional services relative to the extension of a runway at Sumburgh Airport. There was no conclusion for damages because the extent of the loss could not at that time be properly quantified. The action was raised within the prescriptive period. In May 2013 the pursuer lodged a proposed amendment to add a conclusion for payment by the defender of £14,210,000 with interest.

In October 2013 the closed record was opened and amended accordingly and it was agreed that by then the prescriptive period had expired. The defender pled that when the action was raised it had declaratory conclusions only and therefore the summons advanced no claim for implement of any obligation on the part of the defender to make reparation to the pursuer. The defender pled that any obligation to make reparation had prescribed.

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The Lord Ordinary held that she should adopt a purposeful approach to the statutory interpretation of ss.6 and 9. She concluded that since prescription involved curtailment of rights, the legislation fell to be construed in a way that minimised that effect. The action specified the nature of the alleged liabilities in detail and only the quantification of loss was absent. She allowed a proof before answer and repelled the pleas-in-law relating to prescription.

The defender reclaimed. The grounds of appeal were that the Lord Ordinary erred: (1) in holding that the declaratory conclusions sought ‘part-implement’ of the contractual and delictual obligations in respect of which the pursuer sought payment; (2) in holding that the action gave fair notice of the claim; (3) that the action served justice in the protection of rights and was consistent with the underlying purposes of the 1973 Act; and (4) in placing weight on the pursuer’s argument that it felt that it was unable properly to quantify its claim.

Counsel for the defender argued that the pre-1973 law was of no relevance since the purpose of the 1973 Act was to put the law of prescription on a new footing and a declaratory conclusion could not constitute the making of a relevant claim.

Held that the summons left the defender in no doubt that the claim was being made, that it was a claim for payment and that precise quantification of it would follow in due course and that was sufficient to constitute the making of a relevant claim as it was plainly a claim in part-implement of the defender’s alleged obligations being a definitive step in the process of enforcing the claim (para.17); and reclaiming motion refused.

Cases referred to:

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Cape Town Municipality v Allianz Ins Co Ltd, 1990 (1) S.A. 311 (C.) Central SMT Co Ltd v Lanarkshire County Council, 1949 S.C. 450; 1949 S.L.T. (Notes) 310 Devos Gobroeder NV v Sunderland Sportswear Ltd, (IH) 1990 S.C.L.R. 466; 1990 S.C. 2291; 1990 S.L.T. 473 Esso Petroleum Co Ltd v Hall Russell & Co Ltd, 1988 S.L.T. 874 Lancashire Textiles (Jersey) Ltd v Thomson Shepherd & Co Ltd, 1985 S.C. 135; 1986 S.L.T. 41 MRS Hamilton v Baxter, 1998 S.L.T. 1076 Thomas Menzies (Builders) Ltd v Anderson, 1998 S.L.T. 794 Union Electric Co v Holman & Co, 1913 S.C. 954; (1913) 2 S.L.T. 5 Wylie v Avon Insurance Ltd, (OH) 1988 S.C.L.R. 570.

On 21 April 2015 the following opinions were issued. The full circumstances of the case and the arguments of counsel are to be found in the opinion of the Lord President.

LORD PRESIDENT

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Introduction

[1] This is a reclaiming motion from an interlocutor of the Lord Ordinary dated 4 February 2014. It raises a question as to the interpretation of ss.6 and 9 of the Prescription and Limitation (Scotland) Act 1973 (the 1973 Act) and, in particular, a question as to the meaning of the expression “relevant claim” in s.6(1)(a).

The Prescription and Limitation (Scotland) Act 1973

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[2] Sections 6 and 9 of the 1973 Act, so far as relevant, provide as follows: [His Lordship quoted the sections as set out above and continued:]

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The action

[3] The pursuer operates Sumburgh Airport, Shetland. In 2005 it entered into a contract with the defender for professional services in relation to a runway extension. On 1 November 2011 the pursuer raised this action. It concluded, inter alia, as follows: (1) [F]or declarator that the defender is in breach of its contract with the pursuer entered into in or about January 2005 for the provision by the former to the latter of professional services relative to the extension of runway 09/27 at Sumburgh Airport, Zetland, et separatim is in breach of its duty of care to the pursuer in relation to the provision of those services; and that it is accordingly liable to the pursuer in damages et separatim in reparation for the loss suffered by the pursuer as a result of those breaches or either of them; (2) for declarator that in the provision of services by the defender to the pursuer under the contract for the provision of professional services by the former to the latter in connection with the extension of runway 09/27 at Sumburgh Airport, Zetland, entered into between them in or about January 2005, “defects” within the meaning of clause 41 of that contract have arisen, and that the defender having failed to correct the same, it has become liable to pay the pursuer the cost of repairing the same pursuant to that clause.”

[4] There was no conclusion for payment of damages because, according to the pursuer, the extent of the alleged loss could not then be properly quantified.

It is agreed that the action was raised within the prescriptive period.

[5] In May 2013 the pursuer lodged a proposed amendment to add a conclusion for payment by the defender of £14,210,000, with interest. In October 2013 the closed record was opened up and amended accordingly. It is agreed that by then the prescriptive period had expired. In answer 34.1 the defender pled that when the action was raised, it had declaratory conclusions only. Therefore the summons advanced no claim for implement of any obligation on the part of the defender to make reparation to the pursuer.

[6] The Lord Ordinary heard parties on the procedure roll on the defender’s fourth and fifth pleas-in-law; namely: “4. Esto the defender would otherwise be under any obligation to make payment to the pursuer by way of reparation or under the contract (which is denied), any such obligation having been extinguished by the operation of prescription, the defender should be assoilzied.

5. The pursuer’s declaratory conclusion not being claims for implement of any obligation to make reparation arising under the parties’ contract or in delict, those conclusions have not interrupted the running of prescription and, accordingly, the pursuer’s averments in art.34.1 are irrelevant and should be excluded from probation.”

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The decision of the Lord Ordinary

[7] The Lord Ordinary accepted the pursuer’s submission that she should adopt a purposive approach to the statutory interpretation of ss.6 and 9. She accepted that account could be taken of authorities that preceded the Act. She also took account of the recommendations and approach of the Scottish Law Commission, on whose Report, Reform of the Law Relating to Prescription and Limitation of Actions (Scot Law Com No 15 (1970)), the 1973 Act was based; and in particular, its proposal to “clarify, co-ordinate and modernise”

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the law of prescription rather than to introduce new law or signify a change from the underlying principles of the common law. In essence the Lord Ordinary concluded that since prescription involved curtailment of rights, the legislation fell to be construed in a way that minimised that effect. She considered that the action specified the nature of the alleged liabilities in detail. Only the quantification of loss was absent. In this respect the case was to be distinguished from Wylie v Avon Insurance Ltd, to which I shall refer, since the obligation in question in that case was not addressed in the declaratory conclusion. This case did not seek declarator of the mere existence of obligations, it specified the nature of the loss and damage that followed from the breach of them. In the view of the Lord Ordinary the action constituted a claim in part-implement of the obligations alleged. It gave fair notice of the claim. She could see no basis for any prejudice or disadvantage to the defender.

The action served justice in the protection of rights. It was in accordance with good practice that pleadings should be made only where there was a proper evidential basis for them.

[8] The Lord Ordinary therefore excluded the averments in answer 34.1 from probation, sustained the pursuer’s fifth plea-in-law, repelled the defender’s fourth and fifth pleas-in-law and allowed a proof before answer.

That is the interlocutor that is reclaimed against.

The grounds of appeal

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[9] The defender’s grounds of appeal are that the Lord Ordinary erred: (1) in holding that the declaratory conclusions seek “part-implement” of the contractual and delictual obligations in respect of which the pursuer now seeks payment; (2) in holding that the action gives fair notice of the claim; (3) that the action serves justice in the protection of rights and is consistent with the underlying purposes of the 1973 Act; and (4) in placing weight on the pursuer’s argument that it felt that it was unable properly to quantify its claim.

Conclusions The approach to the interpretation of sections 6 and 9

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[10] I agree with the decision of the Lord Ordinary. A “relevant claim”, so far as is material to this action, is a claim made in implement or part-implement of the obligations, contractual and delictual, on which the action is founded and is a claim made in appropriate proceedings (s.9(1)(a)).

[11] Section 4(2)(a) implies that the requirement that the proceedings should be “appropriate” refers to the forum in which the proceedings are brought rather than to the form that the proceedings take (MRS Hamilton v Baxter). The present proceedings are therefore appropriate.

[12] It is not disputed that if the claim can be said to have been made only when the amendment was allowed, the claim has prescribed. The short question therefore is whether the declaratory conclusions in this action constituted the making of a relevant claim.

[13] The defender insists that the pre-1973 law is of no relevance to that question since the purpose of the 1973 Act was to put the law of prescription on a new footing. I do not agree. In my view, the 1973 Act altered the rules of prescription, for example in relation to the period of the short negative prescription and the cases to which it applied; but it did not alter the principles on which prescription is held to occur. In Central SMT Co Ltd v Lanarkshire County Council this court held that a conclusion for declarator of liability was sufficient to prevent the operation of a time bar (cf, also Lancashire Textiles

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(Jersey) Ltd v Thomson Shepherd & Co Ltd, Lord Davidson at p.140). That view was consistent with the principle that a declarator of liability is the first stage in every petitory action, whether or not such a declarator is expressly concluded for (Union Electric Co v Holman & Co, Lord President Dunedin at pp.957–958). In my view, the 1973 Act does not abridge these principles.

[14] But even if one interprets ss.6 and 9 in isolation from any prior case law, the answer, in my opinion, is the same. It is to be found by reference to the apparent purpose of s.6, namely that an informal intimation of a claim, for example by a solicitor’s letter, will not suffice to interrupt the running of prescription. The claim must be made formally by way of litigation.

[15] At first sight it would seem obvious that in this case the sole purpose of the summons, as originally framed, was to establish a liability that would entitle the pursuer to damages the claim for which would be formulated in due course. Against that, counsel for the defender asserted that, as a general rule, a declaratory conclusion cannot constitute the making of a relevant claim. In the court below and in this court counsel relied for that proposition on Wylie v Avon Insurance Co Ltd. In my view, that proposition is unsound. In Wylie v Avon Insurance Co Ltd the pursuer sought merely a declarator of the existence of a contract. That conclusion gave the defender no notice of any remedy that the pursuer sought, nor notice of the provisions of the contract on which the pursuer founded. In the words of the court, it raised only an abstract, academic question.

[16] In a case such as this the question whether a declaratory conclusion constitutes the making of a relevant claim falls to be determined by reference to the terms in which declarator is sought and to the condescendence and pleas-in-law that support it. That, I think, reflects the view that there should be a practical rather than a technical approach to the interpretation of the 1973 Act (Thomas Menzies (Builders) Ltd v Anderson). In this case, the declarators sought directly impute contractual and delictual liabilities to the defender. The condescendence then specifies in detail the contract on which the action is founded, the duties on the part of the defender to which the contract gave rise, and the respects in which the defender is said to have been in breach of the contract and of certain duties of care. It then expressly avers that these breaches have caused the pursuer to sustain financial loss for which the pursuer seeks damages; and that by reason of the complexity of the claim, the damages cannot yet be precisely quantified. The basis of the claim is then epitomised in the pleas-in-law.

[17] Counsel for the defender submitted that in its original form the summons at most indicated the likelihood that the pursuer would make a claim; but did not make the claim itself. I do not agree. On a fair reading, the summons left the defender in no doubt that a claim was being made, that it was a claim for payment and that precise quantification of it would follow in due course. That, in my view, was sufficient to constitute the making of a relevant claim. It was plainly a claim in part-implement of the defender’s alleged obligations, being a definitive step in the process of enforcing them.

[18] I find support for this view in the decision of the House of Lords in Esso Petroleum Co Ltd v Hall Russell & Co Ltd. In that case the owner of a tanker that collided with a jetty at which it was being berthed sought recovery of certain losses from the builder of the berthing tug that had cast off its line and put the tanker out of control. It also sought declarator that if any body or person should recover from it the costs of repairing and reinstating the jetty, it would be entitled to be reimbursed by the builder of the tug and certain other third parties. The Court of Session held, inter alia, that the claim for declarator

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was irrelevant. The House of Lords held that the apparent statutory liability of the pursuer to the owners of the jetty was sufficient to entitle it to the declaratory conclusion on the view that it had a plain interest to protect itself against a possibility of prejudice that was by no means fanciful or unreal (Lord Jauncey at p 886G–H). That was plainly a reference to prescription. In that case the declarator sought was a declarator of a liability that might not in the event arise. In this case, the declarator sought is of an existing liability.

[19] My conclusions are in line with those of Howie J in the Cape Provincial Division in Cape Town Municipality v Allianz Ins Co Ltd, where, although in the context of differently worded provisions, he rejected an argument similar to that advanced for the defender in this case.

[20] If the pursuer when raising this action had simply made its best estimate of its loss on the information then available and had made a formal averment that the sum sued for was a reasonable estimate of the loss and damage sustained by it, the question of time bar would not have arisen. The pursuer would then have been free to adjust or amend the claim, even after the expiry of the prescriptive period, in the light of further and better information (Devos Gebroeder NV v Sunderland Sportswear Ltd at p.477H). That, I think, indicates how contrived the case for the defender is.

Disposal

[21] I propose to your Lordships that we should refuse the reclaiming motion.

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LORD MENZIES [22] I am in complete agreement with your Lordship in the chair, in respect of both reasoning and disposal of this reclaiming motion. I have nothing further to add.

LORD DRUMMOND YOUNG [23] I agree with the opinion of your Lordship in the chair that the reclaiming motion should be refused for the reasons stated, and I have nothing to add.

E

For the pursuer and respondent: Reid QC, Duthie, instructed by Burness Paull LLP, Solicitors, Edinburgh.

For the defender and reclaimer: Keen QC, MacColl, instructed by Brodies LLP, Solicitors, Edinburgh.

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01/03/16 11:05 AM

A COURT OF SESSION

21 April 2015

Outer House Lord Docherty SECRETARY OF STATE FOR BUSINESS INNOVATION AND SKILLS

Petitioner

B

against THOMAS BANKS HAMILTON

Respondent

Companies—Company director—Disqualification Order— Misapplication of funds—Failure to make payment of free personal care rebates—Whether disqualification appropriate—Length of disqualification—Company Directors Disqualification Act 1986 (c.46) The petitioner sought an order for disqualification in terms of s.6 of the Company Directors Disqualification Act 1986 in respect of the respondent, who had worked for many years in the care home industry and had a good deal of knowledge of that industry. He was very familiar with the duties of company directors. He became a director of Ascot Care Homes Ltd. In due course he was also appointed a director of other related companies and continued to hold office as a director in each company until they entered administration in December 2010. The policy of the group was to grow the business by acquiring further care homes and to do that it would be necessary to obtain additional investment from a business investment company called Endless Investments LLP. Several potential acquisitions were considered although many were rejected. In due course rental payments for some of the care homes went unpaid and Ascot had difficulty in meeting its obligations in relation to staff wages. As a result the lender held an investigation into the income and expenditure and it was discovered that very substantial unauthorised payments had been taken from the company by the respondent.

In December 2010 joint administrators were appointed and then provisional liquidators.

The petitioner averred that the respondent’s conduct as a director made him unfit to be concerned in the management of a company. He caused or permitted the misapplication of £158,843.68 of assets consisting of unauthorised payments to himself totalling £70,474.04; unauthorised payments totalling £38,858.82 to settle liabilities incurred by him in respect of personal expenses using a company credit card; and unauthorised payments totalling £49,510.82 to settle liabilities, incurred by himself and through parties connected to him. He had also delayed payment of Free Personal Care rebates to residents of the care homes and their families so as to use the money as working capital of the company. The respondent argued that there had been no agreement as to his remuneration but the costs paid by him had been approved within the budgetary statements of the group and although there had been no resolution of the companies approving any payments by way of remuneration he had determined his own remuneration and that he had been entitled to do so. He had not helped himself to the companies’ funds but had taken reasonable remuneration for the work he was doing.

After proof the Lord Ordinary held that funds had been misapplied by the respondent and that the company and the lender did not know or agree to the payments being made to him let alone that they were being paid to him as

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remuneration nor did he accept that the payments were approved. He also found that the respondent used sums which should have been repaid in respect of free personal care and sums which ought to been paid to HMRC as working capital for the company.

Held (1) that the respondent’s misapplication of funds and his retention of free personal care payments were both misconduct and that the misconduct made him unfit to be concerned in the management company (para.71); (2) that the respondent’s conduct materially contributed to companies becoming insolvent and the misapplication of funds was to the prejudice of the creditors of the company and it continued notwithstanding that the respondent was well aware that the company was in that predicament (para.72); and (3) that the instant case was a serious one and in the circumstances the period of disqualification ought to have been very near the top of the middle bracket described in In re Sevenoaks Stationers (Retail) Ltd and the appropriate period was one of nine years (para.74) and prayer of the petition granted.

Snelling v TSG Music Systems Ltd, 1982 WL 961204 distinguished.

Cases referred to: Duomatic Ltd, Re [1969] 2 Ch 365; [1969] 2 W.L.R. 114; [1969] 1 All E.R. 161 Guinness plc v Saunders [1990] 2 A.C. 663; [1990] 2 W.L.R. 324; [1990] 1 All E.R. 652 Kerr v Marine Products (1928) 44 T.L.R. 292 Secretary of State for Trade and Industry v Henderson, 1995 G.W.D. 19-1151 Secretary of State for Trade and Industry v Marshall, 1994 G.W.D. 19-1151 Sevenoaks Stationers (Retail) Ltd, In re [1991] Ch 164; [1990] 3 W.L.R. 1165; [1991] 3 All E.R. 578 Snelling v TSG Music Systems Ltd, 1982 WL 961204 Tayplan Ltd (in Admin.) v Smith [2011] CSIH 8; [2012] B.C.C. 523.

The full circumstances of the case and the arguments of counsel are to be found in the following opinion of the Lord Ordinary which was issued on 21 April 2015.

E

LORD DOHERTY Introduction

F

G

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[1] Her Majesty’s Secretary of State for Business, Innovation and Skills (the petitioner) seeks a disqualification order in terms of s.6 of the Company Directors Disqualification Act 1986 in respect of Thomas Banks Hamilton (the respondent).

[2] The respondent qualified as a chartered accountant in 1980. Prior to his becoming a director of Ascot Care Homes Ltd (“Ascot”) he had worked for many years in the care home industry. He had a good deal of knowledge and experience of that industry. He had been a company director of many companies. He was very familiar with the duties of company directors.

[3] In 2008 the respondent approached David Newett to seek investment in a business venture to acquire and operate nursing homes. The respondent and Mr Newett had known each for more than 20 years. They had done business together previously. Mr Newett introduced the respondent to Endless LLP, a private investment partnership of which he, Garry Wilson and Darren Foreshaw were the partners. Agreement was reached that Endless LLP would provide finance to enable the acquisition of a business in Callander which

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operated three care homes, Ashlea House, Mountview House and Pinewood Lodge. Endless LLP (or another entity within the Endless group) was to purchase the care homes and lease them back to be operated by a care home company run by the respondent. Endless LLP was to be an equal shareholder with the respondent in the new business venture, Ascot Care Homes Holdings Ltd (“Holdings”). Ascot was to be a wholly owned subsidiary of Holdings. On 30 May 2008 the respondent and Stirling Investments Properties LLP (“SIP”) each acquired one of the two issued shares of Holdings. Mr Newett and his wife were the partners in SIP. The intention was that SIP’s shareholding in Holdings would be transferred to Endless LLP or another entity within the Endless group. On 14 May 2010 a stock transfer form was duly executed by Mr and Mrs Newett transferring SIP’s share to Ascot Healthcare Investments LLP (“AHI”), a related partnership in the Endless group, but it appears that the transfer was not registered in Holdings’ register of members. The unchallenged evidence from Mr Newett was that the stock transfer had been “a tidying up exercise”. It ought to have been registered after the transfer but the person (Paul Foster, chief financial officer at Endless LLP) who had had the responsibility for doing that had overlooked it. Both the petitioner and the respondent accepted that SIP held its shareholding in Holdings as the nominee of AHI. [4] A related partnership, Endless Investments LLP (“Investments”), duly acquired Ashlea House, Mountview House and Pinewood Lodge. Investments let each of the homes to Holdings for a period of 35 years from 29 September 2008. The initial annual rents were £113,000, £102,000 and £125,000 respectively.

[5] The respondent was appointed as a director of Holdings, of Pinewood Nursing Home Ltd (“Pinewood”) and of Ascot. He continued to hold office as a director in each company until the companies entered administration in December 2010. The only other director of Holdings and Ascot was Angela Burns. Pinewood is a wholly owned subsidiary of Ascot.

[6] Holdings’ strategy was to seek to grow the business by acquiring further care homes. While the plan was for growth with it being envisaged that additional investment might be made by Endless LLP or a related entity, no Endless entity was under any legal obligation to Ascot, Holdings or the respondent to make any such additional investment. Each potential acquisition was to be considered on its merits. During 2009 and 2010 several potential acquisitions were considered. Many were rejected.

[7] On 27 April 2009 Holdings acquired the business of Drumpark House Ltd which operated Drumpark House in Bridge of Allan. Holdings leased the premises from the owners for 35 years at an initial rent of £120,000 per annum. Ascot became operators of the nursing home.

[8] On 30 July 2009 Holdings acquired the business and assets of Belvedere Lodge, Stanley. Investments acquired the freehold title and let the care home to Holdings for a period of 25 years at an initial rent of £80,000. Ascot became operators of the nursing home.

[9] Holdings was simply a holding company. The trading company was Ascot. It occupied and operated the care homes. The rents for the care homes were paid out of Ascot’s trading income.

[10] Between 6 November 2008 and July 2009 AHI lent approximately £190,000 to Ascot. Until 9 October 2009 the arrangements for the loans were not formally documented. On 9 October 2009 AHI subscribed for two sets of loan notes issued by Ascot, a variable rate secured loan note with a total value of £48,000 and repayable over 12 months, and a variable rate secured loan

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note with a total value of £142,120 repayable over a three-year period. The first set of loan notes was repayable by two equal instalments of £24,000 due on 31 May 2010 and 31 August 2010. The second set of loan notes was repayable by five equal instalments of £24,000 due quarterly from 30 November 2010. The loan notes did not oblige AHI to advance any further sums to Ascot.

[11] On 9 October 2009 Ascot and Holdings granted to Endless LLP a composite guarantee and debenture comprising fixed and floating charges over their assets as security trustee for Endless LLP and AHI. The debenture was granted in terms of all sums due, owing and incurred to Endless LLP and AHI. [12] As at March 2010 a quarterly installment of rent for the care homes (totalling £94,230.77) was due to be paid by Holdings. It was not paid. A late part-payment of £60,000 was made on 21 April 2010. On about 27 May 2010 Endless was informed that Ascot was unable to finance staff wages which were due for payment the following day. Ascot requested £50,000 financial assistance in order to be able to meet its obligations to staff. The request further increased concerns that all was not well at Ascot. Holdings defaulted on the June rental. As at 31 May 2010 Ascot was in default in respect of the first set of loan notes. No payment was made on that date or on 31 August 2010 when the second installment fell due. No payments of rent were made

by Holdings after the part payment of the March 2010 rent. As at 30 November 2010 Ascot was in default in respect of the second set of loan notes. No repayments of the loan notes were ever made by Ascot.

[13] In September 2010 Endless carried out investigations into Ascot’s income and expenditure. The care homes were visited and access was obtained to Ascot’s books and financial information. The petitioner maintains that as a result of those investigations it was discovered that very substantial unauthorised payments had been taken by the respondent from Ascot. The respondent maintains that all of these payments were known to David Newett and were authorised by him.

[14] On 22 December 2010 joint administrators were appointed to Ascot and Holdings. The joint administrators were appointed provisional liquidators of Pinewood the following day. In fact Pinewood had ceased trading in 2009 and its business and assets had been taken over by Ascot. Claims totalling £1,133,822.71 were lodged in the administration of Ascot. There were no known creditors of Pinewood. HMRC submitted a claim in the Ascot administration of £291,490.21 for outstanding PAYE and national insurance contributions (“NICs”) (for the years 2009/10 and 2010/11). The only claim lodged in the Holdings administration was by HMRC for corporation tax of £2,631.52. There were insufficient funds in the administrations to enable any dividends to be paid to any class of creditors.

[15] The respondent was sequestrated on 17 December 2012.

[16] The petitioner maintains that the respondent’s conduct as a director of Ascot and Holdings makes him unfit to be concerned in the management of a company. First, the petitioner says that the respondent caused or permitted the misapplication of £158,843.68 of Ascot’s funds, viz, unauthorised payments to him totalling £70,474.04; unauthorised payments totalling £38,858.82 to settle liabilities incurred by him in respect of personal expenses using Ascot credit cards; and unauthorised payments totalling £49,510.82 to settle liabilities incurred by himself and third parties connected to him. Second, the petitioner avers that the respondent caused Ascot wrongfully to delay repayment of Free Personal Care (“FPC”) rebates to residents and their families.

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[17] On 5 March 2014, following a debate, Lord Woolman allowed a proof before answer ([2014] CSOH 89). I heard the proof over a period of six days.

There were two joint minutes of agreement. In terms of the second joint minute the parties agreed that the witness statements of Angela Burns and Rickey Pooran should each be treated as his/her evidence. It was not agreed that their evidence was accurate. The respondent led at the proof. He gave evidence himself, and called Keith Douglas and Damien Bechelli as witnesses.

The petitioner called Joanne Covell from the Insolvency Service; two of the partners in Endless LLP, Garry Wilson and David Newett; Aidan Robson, an investment director with Endless LLP; Anthony Briscoe of DHC Accounting; Alison Campbell from Stirling Council; and Gerard Friar, one of the joint administrators. In addition the petitioner lodged an affidavit from a former employee of Ascot, Maureen Pearson (whose inability to attend court to give evidence had been certified on sole and conscience by a medical practitioner).

A

B

Misapplication of funds

[18] In terms of the articles of association of both Ascot and Holdings directors were “entitled to such remuneration as the company may by ordinary resolution determine” (Ascot: art.2, applying reg.82 of Table A in the Companies (Tables A–F) Regulations 1985 (No 6/12 of Process); Holdings: art.1, applying reg.82 of Table A (No 6/48 of Process)). There were no ordinary resolutions by either company approving any payment to the respondent.

[19] Between November 2008 and May 2009 the respondent received a salary from Ascot of £2,500 gross every four weeks (£32,500 per annum).

Between June 2009 and November 2010 he received a salary from Ascot of £4,615.40 gross every four weeks (£60,000 per annum). Notwithstanding that there had not been ordinary resolutions of the company approving these salaries, the petitioner did not suggest that receipt of them by the respondent involved misapplication of the company’s funds. It also seems clear that Endless was well aware that those salary payments were being received, and it appears to have accepted that without demur.

[20] It was also common ground that the £158,843.68 was paid to or for the benefit of the respondent or connected persons; and that it represented cash payments or the meeting of personal liabilities.

C

D

E

The respondent

[21] The respondent’s position in his pleadings (ans.16) was: “[O]f the balance of £158,843, an amount of £66,303.95 was approved in the consolidated accounts to 30 September 2009 and agreed by members of Ascot and the Endless Group. The balance not approved by the members being the value expended in the year ended 30 September 2010, of £83,417.55, and the balance of £9,122.58 accruing in the year to 30 September 2011. . . .”

In relation to the year to 30 September 2010 the respondent averred that there was no agreement as to his remuneration, but that costs of £153,000 for him were “approved within budgetary statements of the Ascot Group”. He averred that that figure falls to be compared with PAYE salary of £55,384.80 and benefits in kind of £83,417.55 paid to him; that that exercise provided “sanction, support and approval” for the expenditure; and that he carried out “substantive and supportable work substantially in excess of any of the value received by (him) from Holdings”. In relation to the £9,122.58 incurred after 1 October 2010 he averred that it “was covered by similar budgets . . . with the

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budget set being substantially higher”. He averred that the whole expenditure of £158,843.68 “was made on behalf of Holdings not Ascot” and that “the total of £158,843.68 would have been held as a debt owed by Holdings to Ascot, and dealt with accordingly for tax purposes or otherwise when the consolidated statutory accounts for the Ascot Group were filed . . .”. He further averred that he had “accrued time and expense relative to the development of Holdings amounting to £839,382”.

[22] In his witness statement (No 42 of Process) the respondent stated: “16. Throughout the period I was paid a basic salary via the Ascot payroll for pension plan purposes and received benefits which were all credited to my director’s loan account, all aspects of benefits received are admitted by me in the cause, and have been from the outset. All of these were expensed to the profit and loss account as set out in respondent Productions nos [7/]4, [7/]13, and [7/]16.

17. The total benefit I received throughout amounted to around £270,884, as set out in respondent Production n. [7/]32. I estimate this to be a pre-tax monetary value of just over £90,000 a year for the three years of work. This is a substantial discount of around 65 per cent of my thirdparty market value of around £250,000 per annum. Respondent production [7/]4 sets out the calculation. I estimate that I was underpaid by about £600,000.

18. All of my entire benefit were fully authorised, it was fully budgeted for and entirely reasonable, and fully reported in the accounts via PAYE and my director’s loan account.

19. I had no contract of employment, and consider the benefit I received to be 65 per cent below my market value provided on the basis of good faith. ...

63. In May 2009, I successfully acquired a long lease interest of Drumpark House . . . the lease right vested being in “Holdings”.

64. This transaction injected a free cash flow of £120,000 a year into the Ascot group.

65. Endless agreed to a £25,000 refurbishment budget as set out in the report by Mr Stephen Harrison of Endless at respondent Production no [7/]10 at p.2.

66. It require (sic) no initial capital introduction from Endless LLP. 67. The interest was acquired at no premium by negotiation and had a market value of around £250,000 in terms of the granted lease value as set out being 2 x EBIDAR (sic).

68. In terms of success fee, I was granted £30,000, and given the quality of the transaction modest (sic). ...

118. By around end June 2010 my personal (sic) into Ascot can only be described as substantive and with total commitment. I have set out all the work and costs in respondent Productio no [7/]32, on an arms lengh (sic) basis the value is £838,382 over three years commencing in January 2008, a huge workload.”

[23] The respondent accepted that there had been no resolution of Ascot or of Holdings approving any such payments by way of remuneration, but he maintained that he had determined his own remuneration and that he had been entitled to do so. He had not helped himself to Ascot’s funds. He had taken reasonable remuneration for the work he was doing. He said that from the very beginning all of the additional sums had been paid through a director’s loan account in order to avoid national insurance contributions. It was untrue to suggest that he had resisted the setting up of a director’s loan account. Mrs

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Pearson was lying when she said that he had. All the payments making up the £158,843.68 had been approved by David Newett. Mr Newett had known about them and had had no difficulty with them. Some of them had been in Ascot’s accounts for the year ending 30 September 2009 which the respondent said that Stephen Harrison and Aidan Robson had seen and agreed on behalf of Endless before they were filed at Companies House. He maintained that all of the payments making up the £158,843.68 had been contained within the regular financial information sent to Mr Newett at Endless LLP. There had been weekly or bi-weekly cash flows. In addition Mr Newett had attended at least two banking presentations by the respondent where there had been reference to the business plan set out in No 7/4 of Process. That document had contained an agreed business plan.

[24] One of the payments particularly focused upon at the proof was the payment of £30,000 in cash made by Ascot to the respondent on 12 June 2009. In his witness statement the respondent’s position (para.68) was that the £30,000 payment represented a “success fee” for him in respect of the acquisition of Drumpark House. In cross-examination he indicated that Mr Newett had been aware that he was taking £30,000 as a consultancy fee for the acquisition of Drumpark House. He said that it had been discussed with Stephen Harrison. His initial recollection was that it had been entered first as a payment to his director’s loan account, not as a payment for fixtures and fittings in Drumpark House. However, ultimately he did not dispute Mr Briscoe’s evidence. He acknowledged that he and Mr Briscoe had had a discussion about where the payment should appear in the accounts and that Mr Briscoe had not wanted it to appear as a payment for fixtures and fittings whereas the respondent had suggested that that would be appropriate. He had accepted Mr Briscoe’s view.

[25] In relation to the other sums the respondent’s evidence at first was that Mr Newett would have known about all of them. He said that he “was due remuneration in some form or other in relation to development work”. He said that details of all expenditure had been sent to Endless. Later, he qualified that by saying: “He (Mr Newett) would probably not have been aware of the smaller items.” Under reference to Nos 6/83 and 6/84 of Process the respondent accepted that whereas in 6/83 Maureen Pearson had included separate entries for “TH Other” sums paid to him, the respondent had not sent that document to Endless. He had removed those entries from the document which was sent (6/84). He explained that he had done that because the relevant costs were all development costs for Holdings. He suspected that Mr Newett probably had not advised Mr Wilson or Mr Robson that he had approved the £30,000 fee. In cross-examination he also maintained that “a full cash book analysis to 30 September 2010” had been given in No 7/16 of Process and had been sent to Endless. He said that the extra remuneration related to his efforts for Holdings and was shown in 7/16. The contents of 7/16 were not further explained. There was no attempt to identify particular entries or to describe their significance.

[26] A further matter explored in cross-examination was how the respondent had treated the payments for tax purposes. He was asked whether he had declared the £158,843.68 as income. His initial response was “I don’t know what I put.” He then said that the payments “would go through Harris Healthcare Ltd” and that only the PAYE salary would have been entered on his tax returns. He said he had filed his tax returns properly. He was pressed as to whether all of the payments would have been recorded against Harris Healthcare Ltd. He replied: “I can’t remember the detail—the major ones would have been recorded against Harris.”

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[27] The respondent made no reference to No 7/17 of Process during the course of his evidence (but, as noted below, he elicited evidence about it from Mr Briscoe).

Anthony Briscoe

B

C

D

E

F

G

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[28] Mr Briscoe indicated that when he came to prepare the accounts for the year ending 30 September 2009 he noticed that the £30,000 payment was recorded in Ascot’s books as having been a payment to Drumpark House Ltd in respect of fixtures and fittings at Drumpark House. Mr Briscoe had prepared the accounts for Drumpark House Ltd. He confirmed with that company that no such payment had been made to it. He raised the matter with the respondent.

The respondent indicated to him that he would raise an invoice from his consultancy company, Harris Healthcare Ltd, for this sum and that that was how the matter should be treated in the accounts.

[29] Accounts for Ascot, Holdings and Pinewood were prepared by Mr Briscoe. In January 2010 he started work on the accounts for the year to 30 September 2009. The accounts for Ascot for that year were sent to the respondent by Mr Briscoe on 5 May 2010. In the covering letter (No 6/133 of Process) Mr Briscoe indicated that the final accounts sent had been adjusted: “We have included the payment of £30,000 to yourself as being further consultancy fees for Harris Healthcare as confirmed in your email.” The profit and loss account had a global entry for “Administrative expenses (£1,790,513)”.

Note 4 stated that directors’ aggregate remuneration in respect of qualifying services was £40,577. Note 15 stated: “15. RELATED PARTY TRANSACTIONS “The company was under the control of Mr Thomas Hamilton throughout the current period. Mr Hamilton is a director and shareholder of the parent company. ...

“Ascot Care Homes Ltd paid consultancy fees of £48,804 to Harris Healthcare (Ltd) a company of which Mr Hamilton is a director. . . .”

Accounts for Holdings were prepared for the year to 30 April 2009 and for periods 1 May 2009 to 30 September 2009. The accounts to 30 April 2009 stated in note 5 that there were no related party transactions. The accounts for the period 1 May 2009 to 30 September 2009 had a profit and loss account for the group which contained an entry “Administrative expenses £2,338,216”.

Note 13 declared that there were no related party transactions.

[30] When preparing the 2009 accounts Mr Briscoe had also prepared, in addition to the statutory accounts, a detailed profit and loss account. This was referred to on the contents page of the accounts but it was not filed as part of the accounts which went to Companies House. In his letter of 5 May 2010 Mr Briscoe stated: “The accounts you have here have been presented in the normal statutory way, but I have also enclosed separate P&L accounts showing the figures in the way you want to show them to the investors.”

Consolidated accounts were also enclosed with the letter. Mr Briscoe wrote of them: “These are for the purposes of yourself and the investors and hopefully are what you were expecting—we have included the profit and loss which shows the trading contribution, rather than the normal statutory P&L.”

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[31] In cross-examination Mr Briscoe confirmed that he had prepared the consolidated accounts for Holdings, No 7/17 of Process, at the respondent’s request. They had been for the respondent’s own purposes—to show to investors. They were not required for statutory purposes. Under reference to the profit and loss account on p.7 Mr Briscoe confirmed that the trading contribution from the care home business had been £618,407. Administration costs had been £139,603. That figure had been largely made up of general expenses shown on p.6 but it did not include legal costs.The figure of £298,809 for “Start up costs (100% W/O)” was mostly acquisition, start-up costs, and development costs. No accounts for the year ending 30 September 2010 had been made up at the time the companies went into administration. Mr Briscoe explained that in late November 2010 he had prepared the report (No 6/122 of Process) recording his concerns at high levels of expenditure claimed by the directors of Ascot for travel and subsistence, legal and professional fees, consultancy fees and entertaining. He had not been provided with supporting documentation for these items. He did not believe that Ascot could withstand such costs year after year.

B

C

Maureen Pearson

[32] Mrs Pearson had been cited to attend as a witness. In advance of the proof a soul and conscience certificate from her GP had been submitted. The certificate certified that Mrs Pearson was unfit to attend the proof. In the circumstances the petitioner lodged an affidavit from her (No 67 of Process).

[33] Mrs Pearson was employed in Ascot’s finance team during the period from 19 June 2009 until after Ascot went into administration. She was retained in that post by the administrators until December 2012. She took over as finance manager of Ascot on 1 January 2010. While she had no formal accountancy qualifications she had over 20 years’ experience working in accounts.

[34] Mrs Pearson indicated that in June 2009 she put in place a director’s loan account so as to properly account for the respondent’s spending. The respondent had not been happy about that (para.32). The respondent provided her with few receipts for his credit card expenditure. He instructed her that his credit card was to be signed off as paid in full. He told her that they were all business expenses (para.33). It was plain that they were not (paras 33, 35, 36–41). He used his credit card for personal purchases as a way of topping up his earnings without paying tax. He did not include any of the additional payments in a P11D return (para.14). His wife was paid £2,500 per month but she was receiving that for no purpose (para.15). Mrs Pearson prepared a weekly management spreadsheet, which was equivalent to a profit and loss account (para.18). The respondent’s expenditure eventually became so significant that she created new lines on the spreadsheet called “TBH Phone” and “TBH Other”. Her recollection was that the respondent’s director’s loan account was recorded on the Sage system, not on the spreadsheet (paras 19 and 32). Mrs Pearson was never allowed to send the weekly management information to Endless. The respondent had said he would send a copy. One of her weekly spreadsheets and what was sent by the respondent to Endless were seen in Nos 6/83 and 6/84 of Process. In March 2010 she had discovered from Mr Robson and his assistant Ms Vilamor that the respondent had not been sending financial information to Endless on a regular basis (para.19).

Mrs Pearson was frequently requested to transfer funds from Ascot’s bank account to the respondent, and to pay third parties on the respondent’s instructions (paras 34, 37–45, 48–49). The £30,000 withdrawn in cash by the

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respondent in June 2009 had been posted against acquisitions on the Sage record (paras 34 and 45).

Garry Wilson

B

C

D

E

[35] Mr Wilson is the managing partner of Endless LLP. He is a chartered accountant and a qualified insolvency practitioner. He indicated that the Ascot Group’s main point of contact with Endless had been through Stephen Harrison, one of Endless’ investment managers, and thereafter through Aidan Robson. Mr Harrison, and then Mr Robson, had met with the respondent on an ad hoc basis, generally about once every two months. The meetings had been informal and the respondent would provide an update on trading and on any potential acquisition opportunities. Most had been rejected. Management accounts and cash flow forecasts had been provided for monitoring purposes.

Mr Wilson, together with Mr Harrison and later Mr Robson, would review and discuss that information. More occasionally the respondent met with Mr Wilson and Mr Newett.

[36] Mr Wilson indicated that in September 2010 he discovered that the respondent had received large sums from Ascot in addition to his salary, including expenses’ payments for non-business expenditure. He had had no inkling of this prior to that time. The respondent’s PAYE salary had been agreed. His reward if the equity value of the group increased would have been that his 50 per cent shareholding increased in value.

[37] In cross-examination Mr Wilson agreed that Mr Harrison had prepared the first five pages of the discussion document No 7/10 of Process. Mr Wilson did not recall seeing the subsequent pages before. He was not familiar with them. He confirmed that Endless’ solicitors, Walker Morris, had spent a great deal of time trying to get the respondent to sign up to an investment agreement and an employment contract. The proposed service contract was No 6/142 of Process. In terms of cl.8.1 the respondent’s salary was to be £60,000 p.a. for all work performed for Ascot and any group company. Mr Harrison had said the respondent could not be pinned down. Mr Wilson had some recollection of the banking presentation No 7/4 of Process. The Endless letter of 1 November 2010 (No 7/34 of Process) had been drafted by Mr Robson, sent to solicitors for input, and had been seen and finalised by Mr Wilson and Mr Newett before it was sent.

Aidan Robson

F

G

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[38] Mr Robson is an employee of Endless LLP. He is a chartered accountant.

In 2008/09 he held the post of associate director. At the time of the proof he was an investment director. His role was to monitor investments and undertake an initial review of investment opportunities. In early December 2009 he took over responsibility from Mr Harrison for Endless LLP’s relationship with the Ascot group and the respondent.

[39] Perhaps because of the long-standing relationship between Mr Newett and the respondent the initial relationship between AHI and the Ascot Group was not as formal as in other investments. Mr Robson re-sent draft heads of terms to the respondent on 26 January 2010 (No 6/143 of Process). Following discussion a first draft of an investment agreement had been prepared (No 6/144 of Process). Agreement had never been reached due to certain outstanding points of principle. The key sticking points had been: (i) the respondent’s salary (he wished this to increase as the business grew and became more profitable); and (ii) the respondent’s request for a committed funding package for the business.

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[40] From March 2010 it became apparent that Ascot was having cash flow difficulties. It defaulted on rent. Towards the end of May it made an urgent request for £50,000 to enable wages to be paid the next day. At the end of May and August 2010 it defaulted on loan repayments. As a result Mr Robson sought more information about Ascot’s financial position. He had been concerned at information sent by the respondent on 7 September 2010 which indicated that some costs and expenses going through Ascot were higher than Endless had previously been led to believe. That had led to a meeting with the respondent on 8 September 2010 and to the subsequent visit to Callendar and the investigation, culminating in the email of 24 September 2010 (No 6/27 of Process). The investigation disclosed the misapplication of funds, as well as major debts to HMRC and to current and deceased residents in respect of FPC repayments. Prior to the visit Mr Robson had not been aware of, and the respondent had never disclosed to him, the existence of the respondent’s loan account, or the existence of any consulting contract between Ascot or Holdings and the respondent’s company, Harris Healthcare Ltd. It was not correct to say that a budget of £153,000 for the respondent’s costs and services for the year ending 30 September 2010 had been agreed by Endless. There had been no such agreement, nor did Mr Robson recollect it being discussed. Endless had been unaware of the additional payments being made to the respondent over and above his salary until the payments were discovered at the time of the investigation in September 2010.

[41] In cross-examination Mr Robson indicated that he did not recall No 7/10 of Process. It pre-dated his involvement. He did not know who had prepared it. He had not played any part in the preparation of No 7/4 of Process, and he did not think that Endless had. Endless may well have seen it. Banking documents or discussion papers would have gone to Mr Wilson or Mr Newett.

It looked similar to a document which had been pulled together earlier in 2010.

A

B

C

D

David Newett

[42] In examination in chief David Newett indicated that he had not approved any of the £158,843.68 payments. It had not been his place to do so. Dayto-day matters such as that and the monitoring of financial information provided

by Ascot were the responsibility of others—the team at Endless. When the payments were brought to his attention at the time of Mr Robson’s email of 24 September 2010 (No 6/27 of Process) it had been a surprise. It had been very embarrassing for him because he had introduced the respondent to his partners at Endless. He confirmed that thereafter he had discussed the sending of the letter of 1 November 2010 (No 6/28 of Process) with his partners and that he had signed the letter. In cross-examination the respondent asked Mr Newett whether he was provided with regular financial information from the Ascot group. Mr Newett replied that he was pretty sure that Endless would have been provided with regular financial information from the respondent.The respondent asked Mr Newett if he had received a copy of No 7/17 of Process (draft consolidated accounts for Holdings for the period ended 30 September 2009).

Mr Newett said that he could not be sure. He would have thought that Endless would have received a copy. The respondent drew his attention to an entry of £298,809 for start-up costs. Mr Newett indicated that he did not know what was within that figure. He was not an accountant. If Endless saw the document the team would have seen this figure. Under reference to No 7/16 of Process the respondent suggested to Mr Newett that the document was a summary cash book document relating to Ascot’s bank account; he suggested that it showed

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the size of the development costs to Ascot and Holdings. The respondent asked Mr Newett whether he would have been provided with documents like that on a regular basis “certainly quarterly”. Mr Newett thought that the team at Endless would have received documents like that. In re-examination Mr Newett indicated that he could not say if he had seen 7/16 before. He knew that information had to be provided to Endless by Ascot on a monthly or quarterly basis but he did not get involved with the information. That was dealt with by the team at Endless. When asked by the court to clarify whether Endless had seen 7/16 Mr Newett replied; “Oh, I am pretty sure Endless would have seen it because information was passed on a monthly or quarterly basis.”

Free personal care payments Introduction

C

D

E

F

G

5046.indd 30

[43] Residents of Ascot’s Scottish care homes who were entitled to FPC payments from the local authority required to pay Ascot the full cost of their care in advance. Ascot then obtained FPC payments for those residents from the local authority and was obliged to repay the residents. Some of the contracts relating to residents provided that Ascot was to pay FPC rebates to residents within seven days of receipt from the local authority (e.g. No 6/13 of Process). Others provided that rebates were to be paid to residents “within a timely manner of Ascot . . . receiving payment from the Council” (e.g. No 6/14 of Process). There were also a few remaining pre-2008 contracts which provided that rebates would be repaid every four weeks provided payment from the local authority had been received by Ascot.

Agreed facts

[44] In terms of para.168 of the joint minute No 58 of Process it was agreed that No 6/183 of Process: “is a schedule summarising, accurately, free personal care payments received by the Ascot Group; sums reimbursed to eligible residents; and time taken to reimburse residents during the period 18 February 2009 to 22 December 2010”.

The schedule shows that remittances made by Stirling Council to Ascot up to September 2009 were generally repaid to residents a week after receipt.

Thereafter funds were retained by Ascot for longer periods. With remittances received by Ascot between March and September 2010 the average retention was seven to nine weeks. The rebates remitted on 27 October 2010 were retained for an average of six weeks. Between April and October 2010 the average total FPC outstanding to residents at each month end was between £51,770.73 and £57,281.72. At the end of November 2010 the total sum outstanding was £24,392.14, and the sum outstanding at the end of December 2010 was £23,152.

The respondent

[45] In the pleadings the respondent averred (ans.40) that he “issued no specific instructions on FPC rebates” but that he “did give general guidance that all third-party creditors should be paid within a time period of eight weeks of the debt arising as an overriding commercial position, unless in dispute”. In para.21 of his witness statement he stated: “I have little direct knowledge of Free Personal Nursing, and there was no specific direction by me on this relative to any other creditors six–eight weeks credit.”

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[46] In cross-examination it was put to the respondent that he was responsible for the time for repayment of FPC to residents and their families being stretched to eight to nine weeks. His initial response was that he did not treat FPC monies as any different from any monies due to creditors. Extending the period small creditors had to wait to up to eight weeks was the respondent’s general approach. He thought that had been reasonable. Residents and their families were “just another creditor”. Those particular creditors would be due to pay the company more money in the future. It had been a business decision.

He did not think it was in any way wrong and he took full responsibility for it.

He agreed that at interview on 24 January 2012 (No 6/161 of Process, para.47) he had described the FPC payments as part of Ascot’s “working capital”. He thought that 90 per cent of the contracts provided for payment “within a timely manner of Ascot . . . receiving payment from the Council”. He did not accept that a sum of £82,857.15 had been due to residents and their families for FPC when Ascot went into administration. Individual statements for each of the residents said to have been concerned had not been lodged so he was unable to check the suggested total. The 15 statements of account for residents which had been lodged (No 6/191 of Process) were incomprehensible. He believed the sum due to have been nearer to £23,000—the total claims for repayment of FPC which had been lodged in the administration (No 6/123 of Process). He had not looked at FPC due at the time. It had not really been on his radar. Prior to the administration there had only been two complaints about the time taken to repay residents. It had not been a major issue at the time.

A

B

C

[Maureen] Pearson

[47] In her affidavit Mrs Pearson stated that from around August 2010 she received various complaints from family members of residents that FPC rebates were not being repaid timeously. She brought them to the respondent’s attention but he told her that he needed the money for other things. He instructed her only to pay those families/residents who were demanding rebates.

[48] Mrs Pearson described No 6/190 of Process as a spreadsheet taken by her from Ascot’s records which summarised outstanding FPC balances due by Ascot to residents. No 6/191 of Process comprised statements of account for 15 residents taken by her from Ascot’s records. No 6/192 of Process was a spreadsheet summarising the amounts owed by Ascot to residents. No 6/188 of Process was a direct print taken by her from Ascot’s Caresys system of the aged debt analysis and identified deceased residents who were owed FPC or care home fee rebates.

[49] Mrs Pearson indicated (para.66) that from about November 2010 she told the respondent that there were no funds when he asked for money to be transferred to his personal account; and that from that time she refunded as much FPC as she could.

D

E

F

Gerald Friar

[50] In cross-examination of Mr Friar the respondent put it to him that No 6/188 of Process was an analysis of sums due by Ascot to both living and deceased residents as at 22 December 2010. Mr Friar’s understanding was that it related only to deceased residents. He agreed that there were anomalies in some of the statements, and that they looked odd. Further analysis was required. The £82,857.15 figure was not supported by back-up statements.

He did not accept that the best indication of the sum outstanding was provided

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by the claims made in the administration. It was not uncommon for claims not to be made in an administration, particularly if there was no expectation of recovery. A further factor here was that many of the potential claimants were elderly residents, or the estates of deceased residents.

Decision and reasons General

B

C

D

[51] I deal first with the evidence given on affidavit by Mrs Pearson. She was not available for cross-examination. In those circumstances I do not think it would be fair to rely upon her evidence other than in relation to uncontentious matters.

[52] Mr Wilson and Mr Robson were impressive witnesses. They gave their evidence carefully and with moderation. I am in no doubt that they were doing their best to assist the court. I found them to be credible and reliable witnesses.

On the whole their accounts appeared to me to sit far better with the other evidence in the case than did the respondent’s account.

[53] Mr Newett was, no doubt, to some extent reluctant to come and give evidence. He did not cooperate with either party to provide a witness statement in advance of the proof. However, having eventually attended at proof he gave his evidence in a straightforward way. He appeared to me to be doing his best to assist the court. His evidence was credible and, except where I indicate otherwise, reliable.

[54] By contrast the respondent was not an impressive witness. In a number of respects his evidence was neither careful nor moderate. He shifted position on occasions. On the material matters which are in dispute I am unable to accept that his evidence is credible or reliable.

Misapplication of funds

E

F

G

5046.indd 32

[55] The starting-point is that a director does not have a right to be remunerated for any services performed for the company except as provided by the constitution or approved by the company’s members (Palmer’s Company Law (25th edn), vol.2, para.8.901–8.907; Guinness plc v Saunders; Tayplan Ltd (In Administration) v Smith).

[56] The articles of association of both Ascot and Holdings provided that the remuneration of the directors was to be determined by ordinary resolution of the company. That was the basis upon which the respondent accepted appointment as a director. The respondent accepted that there were no ordinary resolutions of Ascot or Holdings making provision for his remuneration. His position vacillated between, one the one hand, asserting that he was a director of each company with a casting vote and as such it was up to him to determine his own remuneration; and that he had been paid no more, and in fact less, than his efforts deserved: and, on the other hand, maintaining that Mr Newett and Endless LLP had known of, and agreed to, all the payments which were made to him being made as remuneration for his services to the companies.

[57] As to the first proposition, the respondent agreed that there had in fact been no resolutions of the board of directors of either company approving the payments being made to him as remuneration. Even if there had been, such resolutions would not have validly conferred remuneration upon the respondent (Palmer, vol.2, para.8.907; Kerr v Marine Products). It is also trite that if remuneration has not been duly authorised (in accordance with the constitution of the company, or the unanimous approval of the members) a

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director has no right to remuneration on a quantum meruit basis (see e.g.

Tayplan Ltd (In Administration) v Smith, para.29).

[58] The second proposition appears to me to be an attempt to invoke the Duomatic principle (Re Duomatic Ltd). The shareholders of Ascot who would have been entitled to pass an ordinary resolution approving director’s remuneration for the respondent were the respondent himself and Holdings.

In turn, the members of Holdings were the respondent and SIP. Any approval by the members would have to have been both unanimous and informed. The relevant members would have to have had full knowledge as to what they were assenting (see Palmer, vol. 2, paras 7.434–7.438). Those entitled to vote would have to have applied their minds to the matter (Palmer, vol.2, para.7.437; Tayplan Ltd (In Administration) v Smith, paras 27–28).

[59] Had I accepted the respondent’s evidence as to Mr Newett’s and Endless’ knowledge, a nice question might have arisen as to whether it was the consent of the registered owner, SIP, or the beneficial owner, AHI, which was relevant (see Palmer, vol.2, para.7.439 and the authorities there discussed).

The partners in SIP are Mr and Mrs Newett whereas the partners in AHI are Mr Newett, Mr Wilson and Mr Foreshaw. The matter might have been of some significance since SIP is not an Endless vehicle. Knowledge and approval by employees of Endless/AHI or by Mr Wilson of remuneration for the respondent would not necessarily have involved knowledge and approval by Mr Newett and SIP. [60] However, even assuming (without deciding) that proof of assent by Endless/AHI would have sufficed, in my opinion the respondent has failed to prove the requisite knowledge and assent on the part of Endless/AHI. [61] I do not accept the respondent’s evidence that Mr Newett and Endless knew about, and agreed to, the payments being made to him; let alone that they agreed to them being paid to him as remuneration. On these matters I prefer the evidence of Mr Wilson, Mr Robson and Mr Newett. It was notable that in cross-examination of Mr Wilson and Mr Robson the respondent did not put it to either of them that they had been aware prior to September 2010 of the additional payments being made to or on of behalf of the respondent. It was not suggested to them that they had seen Nos 7/16 or 7/17 of Process prior to that time. Similarly, Mr Newett’s clear evidence that he had been unaware of, and that he had not approved, any of the £158,843.68 payments was not squarely challenged. Nor was it put to Mr Newett that he had agreed to the respondent receiving a £30,000 success fee in relation to Drumpark.

The respondent appeared content to take it from Mr Newett that regular financial information was provided to Endless. However, it was readily apparent that Mr Newett was not in any position to recall the contents of any information provided. His evidence was that he did not examine it. Any such examination would have been carried out by “the team” at Endless. In my opinion Mr Newett’s evidence does not provide any reliable support for the respondent’s evidence that Nos 7/16 or 7/17 of Process had been provided to Endless.

[62] The respondent’s reliance upon Endless having seen banking presentation documents such as No 7/4 of Process does not take him very far.

I am not satisfied that 7/4 was a document prepared by Endless rather than by the respondent. There is no satisfactory evidence that 7/4 was in any sense an agreed document setting out either agreed budgets or agreed remuneration for the respondent. Many of the figures in it proceeded on projections which never came to pass, viz, that the number of care homes operated by Ascot would increase substantially beyond the five that were in fact operated. Insofar

5046.indd 33

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as the presentation suggested that the respondent’s remuneration would increase as the number of care homes grew it is plain from the evidence of Mr Robson and Mr Wilson that no agreement to that effect had been reached.

[63] The Ascot accounts for the year to 30 September 2009 were not prepared until May 2010 and were not filed at Companies House until the following month. The profit and loss account declared only a global figure of £1,790,513 for “Administrative expenses”. The only directors’ remuneration disclosed as such in the accounts was the directors’ aggregate remuneration of £40,577 (note 4). Note 15 (related party transactions) stated that consultancy fees of £48,804 had been paid to Harris Healthcare Ltd “a company of which Mr Hamilton is a director”. No further detail was provided of what the fees were for. £30,000 of the £48,804 had been included only in May 2010, following the clarification by the respondent to Mr Briscoe referred to in Mr Briscoe’s covering letter (No 6/133 of Process). In my opinion the information in the accounts does not provide a sound basis for concluding that a reader of them would have been fully informed that the respondent had taken the benefit of all the payments that he had that year. Even if I had accepted the respondent’s evidence that Mr Harrison and Mr Robson had approved the accounts, I would not have accepted that Endless was aware that by being asked to approve the accounts it was being asked to approve the remuneration which the respondent now claims he was entitled to for that year. As is observed in Palmer, vol.2, para.8.907: “It is not normally sufficient to show the figure taken by directors in the accounts, and the acceptance by the company of the accounts will not itself authorise remuneration which has not otherwise been authorised.

Exceptionally, however, a resolution of the members approving the accounts may be a sufficient authorisation, if all the members are aware that, by being asked to approve the accounts, they are being asked to approve the remuneration.”

The observations made on that passage in the very different circumstances of Snelling v TSG Music Systems Ltd appear to me to have no bearing on the present case.

[64] In any event I do not accept the respondent’s evidence that Mr Harrison and Mr Robson approved the accounts. Mr Harrison’s involvement ceased at the end of 2009—he cannot have seen or approved them. It was not put to Mr Robson in cross-examination that he saw and approved them.

[65] It is clear on the evidence that the respondent was not providing Endless with full details of expenditure or of the precise purposes of all expenditure. Even if the fact that some of the expenditure had been incurred was evident from the information which was provided to Endless, I am satisfied that it was not made plain that the expenditure was for the respondent’s own, non-business, purposes and that it was being taken as remuneration. It is also apparent that the respondent was selective in what he reported. He admitted that in the spreadsheet, No 6/84 of Process, he had omitted the TBH Own line which was in the cashbook (as shown on No 6/83 of Process). His explanation for doing so—that this was Holdings’ expenditure not Ascot’s—was wholly unconvincing. The expenditure was of Ascot’s funds. Whether or not the respondent believed that it ought ultimately to be borne by Holdings, it was his duty to report its having taken place (all the more so because of the Endless’ interest in Holdings). The removal of the figures is an example of the respondent concealing how Ascot’s funds were being used. It reflects badly upon him and upon his general credibility and reliability. Other parts of his

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evidence which portray him in a poor light are the history of his change of position in relation to the £30,000 payment; the evidence he gave in relation to his tax returns; and his attitude towards company creditors. He took the £30,000 in cash from Ascot and instructed that it be treated as being the purchase price of fixtures and fittings at Drumpark. It was only when this was queried that he instructed that it be treated as a consultancy fee paid to Harris Healthcare Ltd. His evidence as to his tax returns and how the £158,843.68 had been treated was vague, evasive and unsatisfactory. It appeared that he had treated none of it as being remuneration paid to him when submitting his tax returns. His suggestion that most of it would have been treated as income of Harris Healthcare Ltd was preposterous given the nature and circumstances of the majority of the expenditure. He withdrew the sums from the company at times when it was evident that it had considerable debts to HMRC for PAYE and NICs. He was content to use as working capital the monies which ought to have been paid to HMRC. As discussed below, he adopted the same approach to FPC rebates which ought to have been paid promptly to residents or their families. His attitude to the rent due for the care homes was irresponsible. Each of the homes was occupied by Ascot, although the tenant under each of the leases was Holdings. The respondent was content not to pay the substantial rents due, seeing it as Holdings’ problem. But the rents had always been paid from Ascot’s trading income: Holdings was a non-trading company. It was plain that the basis upon which Ascot was permitted by Holdings and the landlords to occupy and operate the homes was that Ascot would pay the rent or put Holdings in funds to do so.

[66] It follows that I am satisfied that neither the members of Ascot nor the members of Holdings made an informed and unanimous decision to approve that additional remuneration of £158,843.68 be paid to the respondent. The petitioner has established that the respondent did indeed misapply that sum from Ascot’s funds.

A

B

C

D

FPC

[67] The respondent raised legitimate concerns as to the calculation of the figure of £82,857.15 said by the petitioner to have been owing to residents and deceased residents at the date of the administration. Mrs Pearson was not available to speak to and explain productions 6/188, 6/190, 6/191 and 6/192.

Mr Friar recognised that the documentation produced in 6/191 called for further investigation and explanation.

[68] However, there is no dispute as to the facts set out in No 6/183 of Process. With FPC received by Ascot between March and September 2010 the average retention was seven to nine weeks. Between April and October 2010 the average total FPC outstanding to residents at each month end was between £51,770.73 and £57,281.72. I am satisfied on the evidence, including the respondent’s own evidence in cross-examination, that from about March 2010 he instructed that those entitled to repayment of FPC ought to be treated in the same way as any other ordinary creditor; and that he regarded payment of such creditors within eight weeks as being entirely satisfactory. In the same way as he used sums owed to HMRC as Ascot’s working capital, he used FPC which ought to have been repaid as Ascot’s working capital. Between April and October 2010 the sums involved consistently exceeded £50,000.

According to No 6/183 of Process by the time of the administration the sum involved was of the order of £23,000 (which may fit with Mrs Pearson’s evidence (para.66) that she made a concerted effort to repay FPC from about November 2010).

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Other miscellaneous matters

[69] A great deal of time and effort was spent by the respondent seeking to demonstrate that he was not to blame for Ascot going into administration, and that it was in fact Endless which was to blame. Among the matters raised were assertions that Endless was in breach of an (unspecified) obligation to Ascot to provide additional finance; that Mr Robson had committed Endless to purchase the Community Care Homes and the Argus Care Homes; and that the real reason these transactions did not proceed and there was no further investment in Ascot was that Endless had no finance facility available to it at the material time.

[70] In my opinion it is not necessary or appropriate to say much about these matters. Even if they were true they would not excuse or materially mitigate the respondent’s misconduct. I shall restrict myself to the following observations. First, having regard to the documents which I have seen and the evidence which I have heard there is no proper basis for concluding that Endless had any legal obligation to provide additional funding to Ascot.

Second, I regard as inherently incredible the scenario that on 21 May 2010 Mr Robson gave binding and unqualified undertakings to Mr Pooran and Mr Douglas that the Community and Argus acquisitions would proceed. Mr Robson’s job was simply to report back with a recommendation. He was not the decision-maker. Everyone involved must have known that. The proposed Community and Argus acquisitions had not been the first proposed acquisitions. I do not accept that there was anything more than informal discussions with Mr Robson about the on-going proposed transactions. I accept Mr Robson’s evidence on this matter and I reject the evidence relied upon by the respondent insofar as it is inconsistent with Mr Robson’s evidence.

I do not accept that Mr Robson attended any board meetings of Holdings on that date, nor do I accept that the purported minutes No 7/5 of Process are accurate indications of the discussions with Mr Robson that day. Third, there is no doubt that by 2010 it had become much more difficult to borrow from banks than it had been before the banking crisis and the property crash which began in Autumn 2008. Endless was not unaffected by the changes in banking practice. However, I accept the evidence that the Endless partners had significant funds of their own which they continued to invest in suitable projects. I also accept the evidence that Endless lost confidence in the respondent, and that it was not prepared to invest further in Ascot while he was at the helm.

Disqualification

F

G

5046.indd 36

[71] The respondent’s misapplication of funds and his retention of FPC payments were both misconduct. Further, I have no hesitation in concluding that that misconduct makes him unfit to be concerned in the management of a company. The misapplication of funds from Ascot was on a very significant scale. It involved deceit and putting his own personal interests above the interests of the company and its creditors. He treated the company’s funds as if they were his own. The pursuit of a deliberate policy to use FPC payments as working capital, rather than refund them promptly to residents, demonstrated a serious lack of probity. The respondent was in a position of trust in relation to residents and their families, and his conduct was detrimental to them.

[72] I am also satisfied that the respondent’s conduct materially contributed to Ascot and Holdings becoming insolvent. It was certainly the major cause of Endless losing confidence in him. So far as Endless was concerned the conduct precluded further investment with the respondent at the helm. The

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misapplication of funds was to the prejudice of creditors of Ascot. It made a material contribution towards the company not being able to pay its debts as they fell due. The misapplication continued notwithstanding that the respondent was well aware that the company was in that predicament.

[73] Mr Duthie referred me to In Re Sevenoaks Stationers (Retail) Ltd and to the well-known observations of Dillon LJ at p.174E–G; to Mithani, Directors Disqualification (2nd edn), paras 1512, 1513, 1517, 1518, 1520, 1558, 1559 and the authorities there discussed; and to Secretary of State for Trade and Industry v Marshall and Secretary of State for Trade and Industry v Henderson.

He suggested that in the whole circumstances the court might take the view that the respondent’s conduct fell into the top bracket in Sevenoaks; or failing which, the very top of the middle bracket.

[74] I agree with Mr Duthie that this is a serious case. In the whole circumstances I consider that the period of disqualification ought to be very near the top of the middle bracket described in Sevenoaks. In my opinion the appropriate period is nine years.

A

Disposal

C

[75] I shall grant the prayer of the petition and make a disqualification order for a period of nine years. I shall reserve meantime all questions of expenses.

B

For the petitioner: Duthie, instructed by Shepherd &Wedderburn LLP, Solicitors, Edinburgh.

Respondent: Party.

D

E

F

G

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A COURT OF SESSION

23 April 2015

Inner House (First Division) Lord President (Gill), Lord Justice Clerk (Carloway) and Lord Menzies B

TAYLOR CLARK LEISURE PLC

Applicant

against COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS Respondents

C

D

E

F

G

Process—Rights of audience—English Queens Counsel who appeared before previous tribunals and who specialises in tax law seeking right of audience to appear before Inner House—Whether court has discretion to allow appearance—Whether discretion should be exercised In an appeal before the Inner House from a decision of the Upper Tribunal (Tax and Chancery Chamber) the applicant enrolled a single bill to grant permission to allow Ms Philippa Whipple QC to appear and represent the applicant. She had represented the applicant before the First-tier Tribunal and the Upper Tribunal and was a specialist in tax matters. Permission was sought on the basis that she would be assisted by a practising member of the Faculty of Advocates and that a Certificate from the Bar Council of England and Wales vouching her status as a practising QC of good standing would be produced. The court invited the Dean of the Faculty and the Law Society of Scotland to make written submissions and if so advised to appear at the hearing. The case concerned a claim by the applicant that it was entitled to a repayment of VAT. The applicant submitted that the court had an inherent power to grant the single bill. The idea that it was not within the inherent power was based on a misinterpretation of the Act 1532 c 51. The provisions of the act were equivalent to subordinate legislation. Counsel also relied on her expertise and the fact she had been in the case from the start.

Held (1) that the rule, subject to certain statutory modifications in the modern era, had, by common understanding over the centuries, been part of the law of Scotland and was now an established principle of the Scottish Constitution and the court should not take it upon itself to grant ad hoc rights of audience (paras 16, 17); and (2) that the motion was not presented ex necessitate and the applicant’s interests would not be prejudiced by refusal and there was good reason why rights of audience should be constrained by legal rules (paras 18, 23); and application refused.

Cases referred to: A v Secretary of State for the Home Department [2014] UKSC 25; (S.C.) 2014 S.C.L.R. 593; 2014 S.C. (U.K.S.C.) 151; 2014 S.L.T. 613 Gordon v Nakeski-Cumming, 1924 S.C. 939; 1924 S.L.T. 640 Hepburn v Royal Alexandra Hospital [2010] CSIH 71; 2011 S.C. 20; 2010 S.L.T. 1071 Secretary of State for Business, Enterprise and Regulatory Reform v UK Bankruptcy Ltd [2010] CSIH 80; (I.H.) 2010 S.C.L.R. 801; 2011 S.C. 115. 2010 S.L.T. 1242.

38

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Taylor Clark Leisure v Her Majesty’s Revenue (IH)

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On 23 April 2015 the following opinions were issued. The full circumstances of the case and the arguments of counsel are to be found in the opinion of the Lord President.

A

LORD PRESIDENT Introduction

[1] The applicant seeks leave to appeal against a decision of the Upper Tribunal (Tax and Chancery Chamber). The application will be heard on 1 May. [2] The applicant has enrolled the following single bill.

“On behalf of the applicant, and given her involvement in the matter since 2009 leading ultimately to the hearings before the First Tier Tribunal and the Upper Tier Tribunal, and for the assistance of the court, for the court to exercise its discretion to grant permission for Ms Philippa Whipple QC, barrister, One Crown Office Row, London, England to appear and represent the applicant before your Lordships in the Inner House at the application for leave to appeal hearing scheduled to take place on 1 May 2015 and for any subsequent appeal hearing or such other order as your Lordships deem fit.”

The applicant has amended the motion to the effect that, if Ms Whipple should appear before this court, her appearance should be subject to the conditions that: (i) she is assisted by a practising member of the Faculty of Advocates; and (ii) there is lodged in process a certificate by the Bar Council of England and Wales vouching Ms Whipple’s status as a practising Queen’s Counsel and her good standing. Such a certificate would vouch that Ms Whipple was adequately covered by professional indemnity insurance. The second of these conditions would be unnecessary in my view.

[3] The single bill is opposed. In view of the significance of it, we invited the Dean of Faculty, as leader of the Bar, and the Law Society of Scotland, as representing solicitors who have rights of audience in this court, to make written submissions to us and, if so advised, to appear at the hearing.

B

C

D

The background

[4] The present litigation concerns the applicant’s entitlement to repayment of Value Added Tax said to have been overpaid for many years. The case was heard by the First-tier Tribunal and by the Upper Tribunal in Edinburgh. Before both tribunals Ms Whipple appeared with Mr Philip Simpson, of the Scottish Bar. The proposed appeal seems to involve a straightforward question as to the meaning of s.80 of the Value Added Tax Act 1994. Ms Whipple is a specialist in VAT law and, having conducted the case in the tribunals, is familiar with the issues. The single bill craves the court, inter alia, “to exercise its discretion to grant permission for (Ms Whipple) to appear”. In presenting it, Mr Simpson QC, as he now is, refrained from using the expression “rights of audience”. He said that he merely sought permission for Ms Whipple to appear. In my view, the distinction is meaningless. In reality this motion is about rights of audience.

[5] Because Ms Whipple is qualified in a different jurisdiction within the UK and not in a different Member State, she is not entitled to appear by virtue of art.5 of Directive 2005/36/EC, as implemented by the European Communities (Regulation of Professional Qualifications) Regulations 2007 (SI 2007/2781). Had she been subject to the 2007 Regulations in this matter, her right of appearance would have been conditional on her providing, inter alia, evidence of her professional status and qualifications, evidence of professional indemnity insurance and proof of nationality.

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[6] If Ms Whipple had no legal qualification and was acting gratuitously, and if the applicant had no other legal representation, this court would have discretion to permit her to appear (Rules of the Court of Session 1994, Ch.12B).

[7] If a member of the Scottish Bar were instructed to appear before a court in England and Wales, that member would be entitled to apply to the Bar Council of England and Wales for temporary admission to the Bar. In such an event the individual would have to provide a certificate from the Dean of Faculty confirming his status as a practising member, the date on which he began to practise; and his fitness to be called to the English Bar; and would have to pay a fee.

College of Justice Act 1532, c.51

C

[8] The College of Justice Act 1532 established the College of Justice and is the foundation of this court. It says this: “That na man enter to pley, bot parties conteined in their summoundes and their procuratoures, gif they will ony have.” (Glendook, The Laws and Acts of Parliament Made by King James the First, and his Royal Successors, Kings and Queen of Scotland in two Parts, Part 1 (1681), at p.217) Submissions in support of the single bill

D

E

F

[9] The single bill rests on two propositions: (1) that this court’s inherent power, the existence of which is not in dispute, entitles it to grant the single bill; and (2) that in the circumstances it should exercise its discretion in the applicant’s favour.

[10] On the first point, Mr Simpson contends that the decision of this court in Secretary of State for Business, Enterprise and Regulatory Reform v UK Bankruptcy Ltd (the UK Bankruptcy case) that it was not within the inherent power to extend rights of audience rests on a misunderstanding of the [1523] Act. He submits that the provisions of that Act are equivalent to subordinate legislation; and that no other statutory provision precludes the court’s granting of rights of audience to any suitable person in its discretion. He accepts that, on that view, in a medical negligence case the court could allow a party’s case to be presented by a surgeon.

[11] On the second point Mr Simpson relies on Ms Whipple’s expertise and on her involvement in the case from the outset. He also points out that if he were to lead in the appeal, the instruction of new counsel to assist him would cause duplication of work and wasted costs; that the point in issue relates to a section in a UK-wide statute; and that the litigation proceeded in Scotland only for reasons of procedural convenience.

[12] Mr Simpson too is an expert in tax matters. He confirmed that the applicant does not suggest that if he were to lead in the appeal, the applicant’s case would not be presented competently or properly; or that the applicant’s art.6 rights would be infringed. He accepts that the granting of the motion would have the strange result that the case for the appellant would be presented by a counsel who is not a silk in Scotland but with a junior who is.

The decision in the UK Bankruptcy case

G

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[13] In this case this court concluded that its inherent power did not extend to the granting of rights of audience in this court. It held that the [1523] Act is not in desuetude; that from that and several subsequent statutes it is clear that whenever rights of audience in this court have been extended, that has been done by the legislature and not the court. It concluded that the possibility of further extension of rights of audience should be a matter for the Parliament,

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after due process of consultation, rather than by ad hoc judicial decision (at paras 7–8; 33–37; 39–43).

A

Conclusions Does the inherent power extend to the granting of rights of audience in this court?

[14] In my opinion, the decision of this court in the UK Bankruptcy case was sound. I am confirmed in the conclusions that I expressed in that case by the fact that in s.30 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990, Parliament gave power to the Secretary of State to make regulations regarding the granting of rights of audience to practitioners from England and Wales and Northern Ireland, but that that power was not exercised.

[15] Counsel for the applicant submits that we erred in that decision by failing to recognise that the [1523] Act was merely subordinate legislation. In that case we relied, as the court had relied in Gordon v Nakeski-Cumming, on the version of the [1523] Act set out in the Glendook Duodecimo edition of 1681 of the Acts of the Parliament of Scotland. Counsel has pointed out that that provision was not part of the Act of 1532. It was one of the rules duly made by the Lords of Session under powers delegated to them by James V (Hannay, Acts of the Lords of Council in Public Affairs 1501–1554 (1932) p.373; Acts of Sederunt of the Court of Session 1532–1553 (1811), Ilay Campbell, ed., p.2). These rules were later ratified by James V by letter of 10 June 1532 and by statute of 1540 c.93 (sc College of Justice Act 1540; Hannay, p.377ff).

Moreover, the rules were later amended by the court by Statut of Sessione in 1590 to the effect of increasing the authorised number of advocates to 50 (Hope’s Major Practicks, Stair Society, vol.4 (1938), ed. Clyde). In keeping with that view, the Statute Law Database omits the rule from its published version of the [1523] Act. From this counsel for the applicant concludes that we are free to modify the rule by the use of the inherent power.

[16] I accept the force of Mr Simpson’s interpretation of the sources; but in my view his conclusion does not follow. The question whether the rule has the status of primary or secondary legislation is neither here nor there. What matters is that, subject to certain statutory modifications in the modern era (cf, UK Bankruptcy case, paras. 13–16), the rule has, by common understanding over the centuries, been part of the law of Scotland. In my view, it is now an established principle of the Scottish constitution.

[17] I therefore remain of the view that this court should not take it upon itself to grant ad hoc rights of audience, still less to exercise the inherent power, where Parliament gave itself that power but refrained from exercising it.

B

C

D

E

The exercise of the court’s discretion

[18] In any event, this motion is not presented ex necessitate. It is conceded that the applicant’s interests will not be prejudiced if it is represented by Mr Simpson. The motion is presented on the basis that Ms Whipple is the applicant’s counsel of choice.

[19] On the applicant’s own showing, therefore, the inherent power is not being invoked to prevent an injustice, nor to vindicate the applicant’s art.6 rights.

[20] Counsel for the applicant has drawn an analogy with the position of lawyers in Member States of the European Union. That, in my opinion, is an entirely separate matter. At heart this case is about a domestic constitutional issue. Its context is the Act of Union 1707 and the safeguard in that Act for the preservation of the Scottish legal system (art.19).

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[21] It is understandable that the applicant’s case has been presented by way of an analogy with the situation in England and Wales; but in my view the analogy is imperfect. In Scotland civil justice emanates from the College of Justice under the headship of the Lord President. The College of Justice, of which the judges are the senators, includes counsel, clerks of court, macers and, in my view, advocates’ clerks. The college provides the framework of discipline and the standards of conduct by which each member is regulated. In this way the court protects its own interests by having recourse against any member of the college whose conduct falls below the standards that the court requires (cf, Maxwell, Practice of the Court of Session, p.24). For more than three centuries the right of the court to determine who may be admitted as advocates, and therefore become subject to its disciplinary rules, has been delegated by the court to the Faculty itself (Act of Sederunt 25 June 1692; Stair Memorial Encyclopaedia Re-Issue, Legal Profession, paras 32, 40, 47). Nevertheless a prospective intrant to the Bar must first petition the court for admission. Furthermore the Faculty’s disciplinary rules are at all times subject to the approval of the Lord President.

[22] A key feature of the College of Justice that has applied since its foundation is that counsel in Scotland hold the public office of advocate. The public nature of the office is reflected in the duty of counsel to appear on behalf of any litigant who requests his services and tenders a reasonable fee. It is reflected in the power of the Dean of Faculty to require counsel, in exercise of the faculty’s tradition, to withdraw from a case if counsel should be required to defend an accused person who for any reason is without proper representation. It is also reflected in the rules of priority that require counsel, when instructed for the appeal court or the Inner House, to return conflicting instructions for any lower court. These considerations emphasise that the litigant’s right to be represented by counsel of his choice is not absolute.

[23] This complex of rights and public duties holds the College of Justice together and maintains standards of conduct in the justice system. There is good reason why rights of audience should be constrained by legal rules.

[24] Ad hoc decisions of the kind now applied for would involve the court in granting rights of audience, on different criteria, to counsel who were not subject to the duties of those who hold the public office of advocate, and were not otherwise subject to the jurisdiction of the court.

[25] In this case Ms Whipple does not seek admission to the public office of advocate. She will therefore not be subject to the Legal Services (Scotland) Act 2010 (s.120; cf, Act of Sederunt (Regulation of Advocates) 2011 [SI 2011/312]) and therefore not subject to the jurisdiction of the Scottish Legal Complaints Commission or of the Dean. In my view it would be inimical to the interests of this court if litigants were free to bring to it counsel of their choice from other jurisdictions.

[26] Counsel in Ms Whipple’s position have available to them the option of joining the Scottish Bar by the accelerated procedures that the Faculty of Advocates now offers. That seems to me to be a sensible way to satisfy the applicant’s preferences. Among the several English counsel who have joined the Scottish Bar by this method is a senior counsel who specialises in tax law.

Disposal

[27] I propose to your Lordships that we should refuse the single bill.

G

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LORD JUSTICE CLERK [28] I agree with Your Lordship in the chair that the application in the single bill should be refused.The issue of whether the well-established rule concerning

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rights of audience was initially created by what might now be classified as primary or secondary legislation is of no moment for present purposes. The rule has, subject to certain relatively recent statutory modifications, become entrenched as part of Scots constitutional law.

[29] It may be possible to draw a distinction between a systematic extension of rights of audience, building upon the constitutional foundations of this court, and the ad hoc granting of permission to appear according to the circumstances of a particular case. Such a distinction is, however, without substance. The former effectively regulates the latter.

[30] Rights of audience are the subject of legislative scrutiny according to the prevailing needs of society. Thus, in the 1990s, the then government’s perception that there was a need for wider consumer choice in supreme courts pleaders (Hansard, HC Deb, 12 June 1990, cols.160 and 164) resulted in the extension of Scottish solicitors’ rights of audience in terms of s.24 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990. At the same time the government took the opportunity (HC Deb, 12 June 1990, col.166; 1990 Act, s.30) to address what was considered to be “the anomalous situation, which has arisen under community law, whereby Scottish, English and Welsh lawyers are not able to obtain the same recognition as qualified legal practitioners in each other’s countries as are lawyers from other member states”. Thus, authority was delegated to the government to promulgate regulations in that regard (1990 Act, s.30). It is important to note, however, that there were concerns raised at the time about the effect of such regulations on the quality of the legal profession in Scotland.

[31] The continuing absence of regulations promulgated under s.30 of the 1990 Act is indicative of the will of Parliament. It is not for the court to extend rights of audience independently of, and contrary to, the will of Parliament.

Even if the court had the power to modify the rule as part of its general jurisdiction to regulate its own procedure, that cannot be done by a Division of the court, especially on an ad hoc basis (Hepburn v Royal Alexandra Hospital, Lord Carloway at paras 52–54; Secretary of State for Business etc v UK Bankruptcy, LP (Gill) at paras 39 et seq).

[32] For the reasons given by Your Lordship on the exercise of discretion, I agree that, had the court required to do so, that discretion ought to be exercised by refusing the application. It is important in any legal system that there are settled rules concerning rights of audience which are applicable to all cases.

Such rules are in place in Scotland. They exist in order to maintain a quality of representation in the court for the benefit not only of the court itself, but also the litigants appearing before it. They are, or ought to be, known to those who instruct counsel to appear at tribunals, whose decisions may be subject to review under this court’s jurisdiction.

[33] Outwith the context of the EU Regulations, if a lawyer wishes to secure rights of audience to appear before the Scottish courts, there are procedures, some of an accelerated nature, which will enable him/her to do so. It is these procedures which seek to secure a balance between the rights of the individual, and his preferred choice of representative, with those of the court and the public in general. The interests of justice in Scotland (A v Secretary of State for the Home Department 2013, LP (Gill) at para.38, approved in 2014, Lord Reed at para.38) require the refusal of the present application.

LORD MENZIES [34] I have had the opportunity of reading the opinions of both your Lordship in the chair and the Lord Justice Clerk. I am in complete agreement with

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everything therein, and there is nothing further that I wish to add. I agree with the disposal proposed by your Lordship in the chair.

For the applicant: Simpson QC, instructed by Burness Paull, Solicitors, Edinburgh.

For the respondents: Young QC, instructed by the Solicitor to the Advocate General.

For the Faculty of Advocates: Dean of Faculty (Wolffe QC), Hood.

For the Law Society of Scotland: Lindsay QC, instructed by Balfour & Manson, Solicitors, Edinburgh.

C

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A COURT OF SESSION

30 April 2015

Outer House Lord Tyre HOMEBASE LTD

Pursuer

B

against GRANTCHESTER DEVELOPMENTS (FALKIRK) LTD

Defenders

Landlord and tenant—Lease—Assignment—Permission to assign not to be “unreasonably withheld”—Landlord refusing permission unless given information about reverse premium—Whether unreasonable Words—”Unreasonably withheld”

C

The tenant of commercial premises wished to assign its interest in a lease of the premises to another company. The landlord did not consent to the assignation. The tenant claimed that the landlord was unreasonably withholding his consent. The reason for the withholding of the consent was that the tenant refused to give information requested by the landlord. The tenant was asked to divulge the terms of the agreement between it and the prospective sub-tenant insofar as they regulated any premium or dealt in any way with or in any way related to the payment of sums which fell due to be paid to the landlord in terms of the lease. The tenant maintained that the landlord was not entitled to the information and accordingly was unreasonably withholding consent by demanding it prior to making a decision.

Counsel for the tenant argued that the terms of the lease were clear and prescribed the relevant considerations that might be taken into account by the landlord and these were limited to the proposed assignee being of sound financial standing and demonstrably capable of fulfilling the tenant’s obligations in terms of the lease. If the proposed assignees satisfied those requirements, it was unreasonable for the landlord to withhold consent.

Counsel for the landlord argued that the lease specified a two-stage test and the first stage was to determine whether the proposed assignees’s covenant was good. The second stage was to determine whether there were reasonable grounds for refusal of consent by the landlord. The court should not determine by strict rules the grounds on which a landlord might reasonably or unreasonably refuse consent. In the circumstances of the present case payment of a rent subsidy or reverse premium was highly material to the landlord as it might adversely affect the rent receivable after the next review date, thereby impacting upon the investment value of the property.

Held (1) that a two-stage approach had to be adopted and the first stage was to determine whether the proposed assignees met the financial tests specified in the lease, the test in the instant case being whether the assignee was of sound financial standing demonstrably capable of fulfilling the tenant’s obligations and that determination had to be made on an objective basis and admitted of an affirmative or negative answer without opening up the possibility of any exercise of reasonableness by the landlord and one then passed to the second stage whether the withholding of the consent was reasonable (para.11); and (2) that the request for information made by the landlord in the instant case was reasonable and entitled the landlord to withhold consent unless and until

D

E

F

G

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the information has been supplied (para.12); and declarators sought by the tenant refused and action dismissed.

Cases referred to:

B

C

Ashworth Frazer v Gloucester City Council [2001] UKHL 59; [2001] 1 WLR 218; [2002] 1 All E.R. 377 Bates v Donaldson [1896] 2 Q.B. 241 Bickel v Duke of Westminster [1977] Q.B. 517; [1976] 3 W.L.R. 805; [1976] 3 All E.R. 801 Burgerking Ltd v Castlebrook Holdings Ltd [2014] CSOH 36; 2014 G.W.D. 9–178 Burgerking Ltd v Rachel Charitable Trust, 2006 S.L.T. 224; 2006 G.W.D. 6–112 International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986] Ch 513; [1986] 2 W.L.R. 581; [1986] 1 All E.R. 321 NCR Ltd v Riverland Portfolio (No.1) Ltd (No.2) [2005] L. & T.R. 503 Norwich Union Life Insurance Society v Shopmoor Ltd [1999] 1 W.L.R. 531 [1998] 3 All E.R. 32 Scottish Tourist Board v Deanpark Ltd, 1998 S.L.T. 1121.

The full circumstances of the case and the arguments of counsel are to be found in the following opinion of the Lord Ordinary which was issued on 30 April 2015.

LORD TYRE

D

E

Introduction

[1] The pursuer is the tenant, and the defender the landlord, of retail premises in Central Retail Park, Grahams Road, Falkirk. I shall refer to the parties as “the tenant” and “the landlord” respectively. The lease in favour of the tenant was granted by a predecessor of the landlord for a period of 25 years from 10 November 1995. The tenant wishes to assign its interest in the lease to a company called CDS (Superstores International) Ltd (“CDS”). The landlord has not consented to the assignation. The issue in the case is whether the landlord’s consent has been unreasonably withheld. The material facts are not in dispute and parties were agreed that the case could be decided on the basis of legal argument.

The terms of the lease

F

G

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[2] Clause 5 of the lease contains the tenant’s obligations. These include: “5.9.1. Permitted use “Not to use the Premises other than: 5.9.1.1 as a non-food retail unit or units for the retail sale of do-it-yourself products or materials, home maintenance, home adornment and home improvement products, kitchen and bathroom fitments and equipment, tools and machines, plants and garden furniture, garden produce and supplies, including as ancillary to the foregoing the sale of confectionary or the sale for consumption on the premises of hot and cold non-alcoholic beverages and light refreshments; or 5.9.1.2 for such other non-food retail purpose within class 1 of the Schedule to the Town and Country Planning (Use Classes) (Scotland) Order 1989 (for which all requisite consents have been obtained from the feudal superiors) as the landlord may first

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approve in writing, such approval not to be unreasonably withheld, in the case of some other retail trade or retail business which in the reasonable opinion of the landlord does not conflict with the principles of good estate management; . . . ...

5.11.2 Assignation etc. of whole Not to assign, charge or otherwise dispose of or in any way deal with the tenant’s interest in the whole of the premises without the prior written consent of the landlord which consent shall not be unreasonably withheld (in the case of an assignation) in the case of an assignee of sound financial standing demonstrably capable of fulfilling the tenant’s obligations in terms of this lease. . . . ...

5.11.4 Sub-letting—test “Not to sub-let: 5.11.4.1 the whole of the premises; or 5.11.4[.2] part only of the premises other than a permitted part, in either case without obtaining the prior written consent of the landlord, which consent shall not be unreasonably withheld. . . .

5.11.5 Conditions of sub-letting Notwithstanding the foregoing provisions of this clause 5.11 not to grant a sub-lease of the premises unless: 5.11.5.1 the rent reserved by that sub-lease shall be at a rent which at the date of the grant of that sub-lease . . . in the case of a sub-lease of the whole of the premises is equal to or greater than the open market rent for the premises; 5.11.5.2 that sub-lease is granted on or subject to terms which do not require the payment of any fine or premium to the tenant (other than by way of payment for tenant’s or trade fixtures and fittings) or the giving of any unreasonable incentive or the granting by the tenant of any unreasonable rent free period. . . .”

A

B

C

D

Landlord’s reason for withholding consent

[3] The tenant has agreed in principle with CDS to assign its interest under the lease, subject to obtaining the landlord’s consent to the assignation and also to a proposed change of use which would allow the retail sale of goods not falling within the current permitted use. In response to a letter from the tenant’s solicitors seeking those consents, the landlord’s solicitors, in a letter dated 11 June 2014, stated, inter alia, as follows: “We are advised by our client that the terms of the contractual arrangements between your client and CDS involve payments being made by your client to CDS in consideration for the assignation. Prior to our client being in a position to properly consider your client’s application for consent, our client requires to have further details of the proposed transaction between your client and CDS for the purposes of assessing any impact which that transaction may have on our client’s legitimate interest in terms of the lease. We should therefore be grateful if you would provide to us the terms of the agreement between your client and CDS insofar as they regulate any premium or deal in any with, or in any way relate to, the payment of sums which fall due to be paid to our client in terms of the lease.”

[4] The tenant refused to provide the information requested. Its reasons for refusal were set out in a letter dated 24 June 2014 from the tenant’s solicitors as follows:

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“The fact that any payment may or may not be passing between our clients and CDS is irrelevant in respect of your clients considering this consent application. In that regard we would refer you to the assignation provisions contained at cl.5.11.2 of the lease. Your clients should only be concerned with the identity and character of the proposed assignee and their ability to comply with the tenant’s obligations under the lease.”

[5] Correspondence continued between the parties’ solicitors. The tenant maintained its position that the landlord was not entitled to the information requested, and accordingly no consent to the assignation or change of use was given by the landlord. In the course of correspondence, the tenant did disclose to the landlord the information requested on a confidential basis. According to the tenant’s note of argument, however, this was done “in order to maintain a good commercial relationship with the (landlord) and as a gesture of goodwill”. The tenant did not ask the landlord to make its decision on consent in the light of the information provided. It maintained, and continues to maintain, its position that the landlord is not entitled to the information and accordingly is unreasonably withholding consent by demanding it prior to making a decision.

[6] It is accepted by the landlord that CDS is of sound financial standing and demonstrably capable of fulfilling the tenant’s obligations in terms of the lease. That being so, the only issue is whether the information sought by the landlord is a relevant and material consideration for the purposes of its decisions under cls.5.11.2 and 5.9.1.2 to consent or withhold consent to the proposed assignation and change of use application.

Argument for the tenant

[7] On behalf of the tenant it was submitted that the terms of cl.5.11.2 were clear, and prescribed the relevant considerations that might be taken into account by the landlord. Those were limited to the proposed assignee being of sound financial standing and demonstrably capable of fulfilling the tenant’s obligations in terms of the lease. If the proposed assignee satisfied those requirements, it was unreasonable for the landlord to withhold consent. The issue of whether a rent subsidy or reverse premium was to be payable by the tenant to the proposed assignee was a collateral matter falling outside the considerations specified as relevant by cl.5.11.2. Failure to provide information relating to such matters could not therefore be a ground upon which consent could reasonably be withheld.

[8] In International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd, Balcombe LJ set out at pp.519–520 a number of legal propositions, applied, inter alia, by Lord Drummond Young in Burgerking Ltd v Rachel Charitable Trust at para.16. The second of these was that: “[A] landlord is not entitled to refuse his consent to an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the lease.”

In Norwich Union Life Insurance Society v Shopmoor Ltd, this proposition was held to apply to a refusal of consent to sub-letting of a unit in a shopping centre at a rent below market rates, on the ground that this could have a detrimental effect on the level of rents obtainable for other shops in the centre.

The present case was analogous. It must have been in the contemplation of the parties to a 25-year lease that there would be assignations and sub-lettings from time to time. In contrast to the position under cl.5.11.5 regarding

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sub-letting, the lease itself contained no provision prohibiting rent subsidy on assignation. This was not an oversight and indicated that the parties had agreed that there was to be no control exercisable by the landlord over such a matter. The element of judgment implicit in the “reasonableness” of withholding consent referred to the landlord’s assessment of whether the criteria specified by cl.5.11.2 were fulfilled by a proposed assignee. The court might disagree with the landlord’s assessment yet nevertheless find it not to have been unreasonable. Here, however, it was admitted that CDS fulfilled the criteria, and so consent could not reasonably be withheld.

A

B

Argument for the landlord

[9] On behalf of the landlord it was submitted that cl.5.11.2 specified a twostage test. The first stage was to determine whether the proposed assignee’s covenant was good, i.e. whether it was of sound financial standing and demonstrably capable of fulfilling the tenant’s obligations. If and only if that test was satisfied, one passed to the second stage, which was to determine whether there were reasonable grounds for a refusal of consent by the landlord.

The two-stage approach had been explained by AL Smith LJ in Bates v Donaldson at pp.246–247 as follows: “It will be seen that it is only when a respectable and responsible person is proposed as assignee or undertenant that this clause (as to the permission not being unreasonably withheld) comes into play. If the person proposed be not a respectable and responsible person, the lessor has an absolute right to refuse permission; if, however, the person proposed be respectable and responsible, then the lessor cannot unreasonably withhold his permission.”

The same approach had been taken in Burgerking Ltd v Rachel Charitable Trust, in which it was held that consent to sub-letting had been reasonably refused albeit that the proposed sub-tenant was held to meet the criteria of being substantial and respectable and of sound financial standing. It had also been adopted in Burgerking Ltd v Castlebrook Holdings Ltd, a decision of mine. It had been implicitly adopted by the House of Lords in Ashworth Frazer v Gloucester City Council, which could not have been decided as it was if the grounds upon which consent could reasonably have been withheld were restricted to the respectability and responsibility of the proposed assignee. Moreover, the question whether a prospective tenant was of sound financial standing fell to be determined on an objective basis: it did not admit any exercise of reasonable judgment. The tenant’s construction failed to give any substance to the word “reasonably” in cl.5.11.2.

[10] As regards the reasonableness of the withholding of consent, the court should not determine by strict rules the grounds on which a landlord might reasonably or unreasonably refuse consent: Ashworth Frazer Ltd v Gloucester City Council, Lord Rodger of Earlsferry at para.67, applying a dictum of Lord Denning MR in Bickel v Duke of Westminster at p.524. In the circumstances of the present case, payment of a rent subsidy or reverse premium was highly material to the landlord as it might adversely affect the rent receivable after the next review date, thereby impacting upon the investment value of the property.

It was therefore reasonable for the landlord to seek that information before making a decision whether or not to consent to the assignation. Reference was made to Norwich Union Life Insurance Society v Shopmoor Ltd, Sir Richard Scott V-C at p.547; NCR Ltd v Riverland Portfolio (No.1) Ltd (No.2), Carnwath LJ at para.30; Burgerking Ltd v Rachel Charitable Trust, Lord Drummond Young at paras 26–30.

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Decision

[11] In my opinion the submissions on behalf of the landlord are to be preferred. I accept, firstly, that a two-stage approach along the lines described

by AL Smith LJ in Bates v Donaldson must be adopted. The first stage is to determine whether the proposed assignee meets the financial test specified in the lease, the test in this case being whether the assignee is of sound financial standing demonstrably capable of fulfilling the tenant’s obligations. That determination must be made on an objective basis (Scottish Tourist Board v Deanpark Ltd, Lord Penrose at p.1126) and admits of an affirmative or negative answer without opening up the possibility of any exercise of reasonableness by the landlord. As AL Smith LJ observed, if the proposed assignee fails to meet this test, the landlord has an absolute right to refuse consent. On the other hand, where, as here, the proposed assignee meets the financial test, one passes to the second stage, and the landlord’s consent can be withheld only if withholding is reasonable. In my opinion this construction of the clause accords with commercial common sense. There may be good reasons, unconnected with the financial standing of the proposed assignee, why a landlord might wish to withhold consent, although he will not be entitled to do so if the reasons have nothing to do with the relationship of landlord and tenant in regard to the subjects leased. The terms of cl.5.11.2, which are not at all unusual, protect the landlord from having his premises used or occupied in an undesirable way (cf, Balcombe LJ’s first proposition of law in International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd at p.519).

[12] The question in the present case is whether the landlord has reasonably withheld consent on the ground of the tenant’s refusal to provide information as to whether it has agreed with the proposed assignee to make any payment by way of rent subsidy or reverse premium. In my opinion the landlord’s request for this information is reasonable, entitling it to withhold consent unless and until the information is supplied. There are ample judicial dicta recognising that the payment of a rent subsidy or reverse premium may affect the rental value of the property. Perhaps the clearest is the observation of Sir Richard Scott V-C in the Norwich Union v Shopmoor case at p.547 that, “. . . there can be no question but that the landlord can reasonably refuse consent if the assignment will result in a diminution in the value of the rental value of the property itself”.

The court went on in that case to hold that in the case of a sub-letting of premises comprised in a 150-year lease, there could be no suggestion of any such diminution. The principle was, however, regarded as well established.

Similarly, in Burgerking Ltd v Rachel Charitable Trust, Lord Drummond Young held (para.30) that payment of a very substantial reverse premium was likely to have an effect on the rent determined at the time of the next letting of the premises, and that that was sufficient to render the defenders’ decision to withhold consent one that a reasonable landlord might make. It is clear that where the landlord’s concern relates to the effect of a rent subsidy or reverse premium on the level of rental likely to be obtainable in future for the same property, as opposed to, for example, other retail units within the same shopping centre (as in Norwich Union v Shopmoor), this is not a collateral matter falling within Balcombe LJ’s second proposition. I do not accept the submission on behalf of the tenant that because any lease of the premises in five years’ time would be a different lease with, perhaps, a new tenant, the landlord’s concern was properly characterised as collateral. Such a contention is inconsistent with the authorities to which I have referred and attributes too

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wide a scope to Balcombe LJ’s proposition, which refers to grounds that have “nothing whatever” to do with the relationship of landlord and tenant of the premises in question. That cannot, in my opinion, be said of a matter which is said to be capable of having a significant and adverse effect on the future rental value of those premises.

[13] If, as I have held, the payment of a rent subsidy or reverse premium is a matter which might—and I need put it no higher than that—reasonably affect the landlord’s decision whether or not to consent to the proposed assignation to CDS, then it follows that it is reasonable for the landlord to require the supply of that information before making its decision. It further follows that the landlord is not acting unreasonably in withholding consent either to the assignation or to the change of use on the ground that the tenant is refusing to supply the information.

A

B

Disposal

[14] The tenant has not established that it is entitled to any of the declarators which it seeks. I shall accordingly repel the pursuer’s pleas in law, sustain the defender’s first plea-in-law (a general relevancy plea) and dismiss the action, reserving questions of expenses.

C

For the pursuer: Lindsay QC, instructed by DWF LLP, Solicitors, Edinburgh.

For the defenders: Dunlop QC, instructed by Brodies LLP, Solicitors, Edinburgh.

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E

F

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A COURT OF SESSION

27 May 2015

Outer House Lord Burns B

FRIENDS OF LOCH ETIVE

Petitioner

against ARGYLL AND BUTE COUNCIL and DAWNFRESH FARMING LTD

C

D

E

F

G

Respondent Interested party

Town and country planning—Fish farm—Permission granted – Section 75 agreement to remove equipment from previously existing fish farm site—Whether agreement habile to achieve permanent removal of previous sites—Whether decision to grant permission unlawful—Town and Country Planning (Scotland) Act 1997 (c.8)— Planning etc. (Scotland) Act 2006 (asp 17)—Town and Country Planning (Marine Fish Farms Permitted Development) (Scotland) Order 2011 (SSI 2011/114)—Town and Country Planning (General Permitted Development) (Fish Farming) (Scotland) Amendment Order 2012 (SSI 2012/131) Section 26 of the Town and Country Planning (Scotland) Act 1997 provides, inter alia: “(1) Subject to the following provisions of this section in this Act, except where the context otherwise requires, ‘development’ means the carrying out of building, engineering, mining or other operations in, on, over or under land or the making of any material change in the use of any buildings or other land, or the operation of a marine fish farm in the circumstances specified in section 26 AA. ...

(6) Where the placing of the assembly of any equipment in any part of any waters which: ... (b) not being inland waters, are landward of the baselines from which the breadth of the territorial sea adjacent to Scotland is measured, or (c) are seaward of those baselines up to a distance of 12 nautical miles, for the purpose of fish farming there would not, apart from this subsection, involve development of the land below, this Act shall have effect as if the equipment resulted from carrying out engineering operations over that land; and in this section; “ ‘Equipment’ includes any tank, cage or other structure or long-line for use in fish farming. “ ‘Fish farming’ means the breeding and rearing or keeping of fish. . . .

(6)AA Where the making of material change in the use of equipment so placed or assembled for that purpose would not, apart from this subsection, involve development of the land below, this Act shall have effect as if the making of such material change was development of that land.”

Section 26AA of the 1973 Act provides: 52

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(1) The circumstances to which section 26(1) refers are— (a) that the marine fish farm is being operated after— (i) the date which is the appropriate date in respect of that fish farm, or (ii) if earlier than that date, the date on which planning permission is granted, or an application for planning permission is refused, under section 31A, and that the operation involves the use of equipment which was placed or assembled in waters at a time when that placing or assembly did not constitute development under this Act. (2) For the purposes of section (1)(a) the appropriate date in respect of a fish farm is whichever is the latest of— (a) a date prescribed by the Scottish Ministers for the purposes of this subsection, and (b) the date upon which any authorisation which— (i) relates to the operation of that fish farm, and (ii) is in effect at the date of commencement of section 4 of the Planning etc (Scotland) Act 2006, ceases to have effect (3) In this section and in section 31— “ ‘Authorisation’ means— (a) a consent for fish farming issued by the Crown Estate Commissioners, “ ‘Equipment’ has the same meaning as in section 26(6) “ ‘Marine fish farm’ means a fish farm situated in any part of any waters referred to in paragraphs (b) and (c) of section 26(6).”

Section 31A of the 1973 Act provides: “(1) This section applies to a planning permission for the operation of a marine fish farm which involves the use of such equipment as is referred to in section 26 AA(1)(b).

(2) Any planning permission is to be granted by the Scottish Ministers.

(2A) Subject to subsection (4) any planning permission may be granted by the Scottish Ministers— (a) by order or (b) on an application to them in accordance with regulations under subsection (8).”

Part 6a of Sched.1 to the Town and Country Planning (General Permitted Development) Order 1992 provides: “Class 21A (1) the placing or assembly of equipment within the area of an existing fish farm for the purpose of— (a) Replacing an existing finfish pen, in the same or a different location, with a finfish pen of— (i) The same size, colour and design or (ii) a different size, colour or design. (b) relocation of an existing finfish pain or (c) installing additional finfish pens.”

In 2012 the interested party submitted a planning application for the establishment of a new fish farm at the site called Etive 6. There was significant opposition to that application in response to which it was withdrawn and a revised application submitted which proposed smaller and fewer cages than the original application. At a public meeting of the Planning, Protective Services and Licensing Committee of Argyll and Bute Council the recommendation of the planning officer was to grant the application subject to concluding an agreement under s.75 of the 1997 Act. That recommendation

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was accepted unanimously by the committee. The agreement provided, inter alia, for the permanent removal of the applicants’ existing fish farm equipment from Etive 1 upon the first stocking of the site at Etive 6 and the removal of the existing fish farm equipment from the site at Etive 5 before 31 December 2017 following the expiry of the applicants’ existing site leasing obligations. In due course the council granted permission.

The petitioner is a charitable organisation, the primary purpose of which, is to preserve and protect Loch Etive. It raised a petition against the council and sought declarator that the decisions to grant permission and to enter into the s.75 agreement were unlawful and/or ultra vires and/or unreasonable and for reduction of the decisions. The action was served on the interested party and they lodged answers to the petition.

The petitioners submitted first, that the recommendation in the report to the committee, in the event of approval for a new fish farm at Etive 6, required the permanent removal of the existing fish farms at Etive 1 and 5. The recommendation proceeded on an error of law. The s.75 agreement entered into could not achieve that purpose. Permanent planning permission existed for the operation of fish farms at the sites which could be used by parties other than the interested party holding the necessary leases of the seabed from the Crown Estate. Thus when the interested party’s equipment at those sites was removed, replacement equipment could be installed by or on behalf of those other parties and the operation of fish farms could legitimately continue. In this way the grant of permission based on the agreement would be fatally undermined. Secondly, the s.75 agreement was not in any event habile to achieve the permanent removal of Etive 1 and 5. Thirdly, the decision was unlawful, ultra vires and unreasonable since to achieve the council’s objectives in granting permission for Etive 6, any future application for permission to establish a fish farm at Etive 1 and 5 would have to be refused. The council was not permitted to tie its hands in that way and had an obligation to consider any such application on its merits. Fourthly, the s.75 agreement sought to use a condition in the agreement to restrain the transfer of Controlled Activities Regulations licences granted under the Water Environment (Controlled Activities) (Scotland) Regulations 2011. Fifthly, the decision was unlawful, ultra vires and unreasonable since the s.75 agreement purported unilaterally to take away valuable rights of third parties.

Counsel for the respondent argued that the agreement was effective in controlling the operation of fish farms at Etive 1 and 5 because the existing permission for Etive 1 and 5 only extended to the use of equipment referred to in s.26AA(1)(b) of the Act. New planning permission would be required to use new equipment.

Held (1) that decision to grant the application on completion of the s.75 agreement was not based on an error of law and the removal of the original equipment from Etive 1 and 5 brought the planning permission under the 2011 Order for the operation of fish farms there to an end (para.35); and (2) that it was not decided that no fish farms were ever to be located at the sites but the interested party could not operate all three sites and there would be no reason why an application to re-establish a farm at Etive 1 or 5 could not have been made and considered on its merits (para.43); and petition dismissed Cases referred to: Schwerzerhof v Wilkins [1898] 1 Q.B. 640 Stringer v Minister for Housing and Local Government [1971] 1 W.L.R. 1281; [1971] 1 All E.R. 65.

G

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The full circumstances of the case and the arguments of counsel are to be found in the opinion of the Lord Ordinary which was issued on 27 May 2015.

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Friends of Loch Etive v Argyll and Bute Council (OH)

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LORD BURNS

A

Background

[1] Because of the quality of its waters, Loch Etive is ideally suited to the farming of rainbow trout and shellfish. For some time there have been a number of fish and shellfish farms there. In particular, Dawnfresh Farming Ltd (Dawnfresh) has operated five farms on the loch including Etive 1 and Etive 5. Dawnfresh do not hold the lease of the seabed in respect of these farms which is a necessary element for such an operation. In the case of each, the Crown Estate, which owns the rights to the seabed, have granted a lease to Lorne Fisheries Ltd (in respect of Etive 1) and to Mrs Sarah Troughton (in respect of Etive 5). Dawnfresh operate those farms under management agreements with each of the leaseholders using equipment owned by Dawnfresh. As explained below, until amendment to the Town and Country Planning (Scotland) Act 1997 (the 1997 Act) in 2007, the operation and establishment of fish farms did not require planning permission. That changed by virtue of certain amendments to the 1997 Act. Existing fish farms, including Etive 1 and 5, were given planning permission by the Scottish Government by virtue of a permitted development order of 2011.

[2] In 2012 Dawnfresh submitted a planning application for the establishment of a new fish farm at a site called Etive 6. There was significant opposition to that application in response to which it was withdrawn and a revised application submitted which proposed smaller and fewer cages than the original application. A public meeting of the Planning, Protective Services and Licensing Committee of Argyll and Bute Council (the council) took place in Oban on 29 January 2014 in order to determine the application. The recommendation of the planning officer was to grant the application subject to concluding an agreement under s.75 of the 1997 Act. That recommendation was accepted unanimously by the committee. The heads of terms of the s.75 agreement are set out in the minutes of the meeting. The agreement was to provide for the, “permanent removal of the applicants’ existing fish farm equipment from Etive 1 upon the first stocking of the site at Etive 6” and: “the removal of the existing fish farm equipment from the site at Etive 5 on or before 31 December 2017 following the expiry of the applicants’ existing site leasing obligations”.

This was in order to achieve the necessary degree of consolidation and rationalisation of farming activity on the loch to ensure, in the view of the committee, compliance with the development plan and other material considerations. On 21 March 2014, a s.75 agreement having been entered into, the council granted permission.

[3] The petitioner is a charitable organisation the primary purpose of which is to preserve and protect Loch Etive. It has raised this petition against the council and seeks declarator that the decisions to grant the permission and to enter into the s.75 agreement were unlawful and/or ultra vires and/or unreasonable and for reduction of those decisions. The petition was served upon Dawnfresh as an interested party and upon Lorne Fisheries Ltd and Robert Campbell-Preston for any interest they might have. Dawnfresh lodged answers to the petition. The petition called before me for a first hearing. The petitioner was represented by Sir Crispin Agnew QC and Mr MacDougall.

The council [was] represented by Mr Mackay who appeared on the first day with Ms Wilson QC. She fell ill and Mr Mackay proceeded alone. Mr Findlay appeared for Dawnfresh the interested party. The court is grateful to counsel

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for their assistance but particularly to Mr Mackay for minimising the delay occasioned. Written submissions were helpfully provided by the parties supplemented by oral submissions over a period of three days.

The arguments

[4] The arguments for the petitioner which emerged during the course of the debate can, I think, be summarised as follows: B

1.

C

2.

D

3.

E

4.

5.

F

The recommendation in the report to committee, in the event of approval for a new fish farm at Etive 6, required the permanent removal of the existing fish farms at Etive 1 and 5 operated by Dawnfresh. Permission was granted by the council on that basis but the recommendation proceeded on an error of law. The s.75 agreement entered into cannot achieve that purpose. Permanent planning permission exists for the operation of fish farms at Etive 1 and 5 which could be used by parties other than Dawnfresh holding the necessary leases of the seabed from the Crown Estate and other consents. Thus when Dawnfresh’s equipment at those sites is removed, replacement equipment could be installed by or on behalf of those parties and the operation of fish farms could legitimately continue. The required rationalisation of fish farming at Loch Etive would therefore not be achieved and the rationale behind the grant of permission fatally undermined.

The s.75 agreement is not, in any event, habile to achieve the permanent removal of Etive 1 and 5. That is because, first, the agreement is personal to Dawnfresh. It does not attach to or bind the land or bind current or future tenants of the Crown Estate at Etive 1 and 5 from establishing fish farms there. Second, the Crown Estate is not a party to it and it does not prevent the Crown Estate granting leases for Etive 1 and 5 in the future. Nor does it prevent the leaseholder (or someone acting on their behalf) from obtaining the necessary consents and placing their own equipment at these sites.

The decision is unlawful, ultra vires and unreasonable since to achieve the council’s objectives in granting permission for Etive 6, any future application for permission to establish a fish farm at Etive 1 and 5 would have to be refused. The council [is] not permitted to tie its hands in that way and [has] an obligation to consider any such application on its merits.

The s.75 agreement seeks to use a condition in the agreement to restrain the transfer of Controlled Activities Regulations licences granted under the Water Environment (Controlled Activities) (Scotland) Regulations 2011 (the CAR Regulations) in respect of Etive 1 and 5. That is not a proper planning function.

The decision is unlawful, ultra vires and unreasonable since the s.75 agreement purports unilaterally to take away valuable rights of third parties in Etive 1 and 5 when the council had no power to do so without compensation.

[5] The statutory scheme which provides the framework in which these issues fall be to decided is as follows: The Town and Country Planning (Scotland) Act 1997

G

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[6] The relevant provisions of the 1997 Act are contained in ss26, 26AA and 31A as amended by the Planning etc. (Scotland) 2006. Insofar as material for the present purposes, s.26 provides as follows: [His Lordship quoted the section as set out above and continued:]

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Section 26AA provides as follows: [His Lordship quoted the section as set out above and continued:] [7] Section 26(1) and 26AA of the 2007 Act, as amended and when read together, provide that the operation of a fish farm after the appropriate date (and I will take 1 April 2007 as the appropriate date for these purposes since I understand that that was the first such date) where that operation involves the use of equipment placed or assembled in waters at a time when that placing or assembly did not constitute development under the Act (that is before 1 April 2007), constitutes development in terms of s.26(1).

[8] Accordingly, planning permission became a requirement for such operation thereafter. In order to provide for the necessary permission to be granted for such an operation s.31A gave power to the Scottish Ministers to do so either by order or on application to them in accordance with regulations to be made.

[9] Section 31A so far as material provides as follows: [His Lordship quoted the section as set out above and continued:] [10] Further provision is made to allow planning permission to be granted as respects a class of development.

A

B

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The 2011 Order

[11] The power granted to Scottish Ministers under s.31A was exercised by the Town and Country Planning (Marine Fish Farms Permitted Development) (Scotland) Order 2011 [SSI 2011/114] which came into force on 21 February 2011 (the 2011 Order). The Scottish Ministers made that order in exercise of the powers conferred upon them by s.31(A) of the 1997 Act. [12] By art.3 of the 2011 Order, permission was granted for the operation of fish farms in, inter alia, Loch Etive, involving the use of equipment referred to in s.26AA(1)(b) of the 1997 Act for the purpose of breeding, rearing or keeping of fish. By art.3(4) permission for development was not granted unless the equipment referred to in the above subsection was in use on 23 February 2011 or had been used between 1 January 2008 and 23 February 2011 for the purposes of fish farming.

[13] By art.3(5) the permission granted by the order was subject to the condition that: “In the event of any equipment falling into disrepair or becoming damaged, adrift, stranded, abandoned or sunk in such a manner as to cause an obstruction or danger to navigation, the developer shall carry out such works (including lighting, buoying, raising, repairing, moving or destroying the whole or any part of that equipment) so as to remove the obstruction or danger to the navigation.”

[14] It was common ground between the parties that permission for the operation of the marine fish farms at Etive 1 and 5 was granted by art.3 of the 2011 Order. Accordingly, in February 2011, Etive 1 and 5 received permission for the operation of the fish farms at those locations involving the use of equipment which had been placed there prior to 1 April 2007. Since the operation of these farms, with equipment in place prior to 1 April 2007, was granted by the 2011 Order, no development in terms of s.26(6) of the 1997 Act was involved. That subsection only renders the placing or assembly of fish farm equipment “engineering operations” and thus development if that equipment is placed or assembled after 1 April 2007. The equipment at Etive 1 and 5 had been placed or assembled prior to that date.

[15] It is to be noted at this stage that art.3(5) imposes a condition on all such fish farms obliging the operator in the event of the events listed, inter alia,

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to raise or repair any part of the equipment of the fish farm which might fall into disrepair so as to cause an obstruction or a danger to navigation” so as “to remove the obstruction or danger to navigation”. That represents, in my view, a limited method by which works on the equipment as defined in s.26AA(1) (b) could be undertaken so as to fulfil the obligation imposed by that condition.

Accordingly, if any part of the equipment becomes such as to represent a danger to navigation the developer is obliged to carry out works to remove that danger. The obligation is one limited to carry out works to remove the danger or obstruction. Subject to that, the permission granted by the 2011 Order extends only to a use of the equipment which had been in place prior to 1 April 2007.

The 2012 Order

C

D

E

[16] By art.2 of the Town and Country Planning (General Permitted Development) (Fish Farming) (Scotland) Amendment Order 2012 (the 2012 Order), planning permission was granted for new classes of development specified in Pt.6a of Sched.1 to the Town and Country Planning (General Permitted Development) Order 1992 (the 1992 Order). Class 21A granted permission for: [His Lordship quoted the para. as set out above and continued:] [17] However, certain restrictions were placed on developments of this sort if the dimensions of the tank or cage concerned was of a greater area than specified therein or would result in the overall surface area comprising the fish farm being more than 1,000 square metres greater or 10 per cent greater “than the surface area of the water is covered by the original equipment”. By art.5 of class 21A, a “finfish pen” means a tank or cage used for the purposes of fish farming. In the interpretation article, “original equipment” is defined so as to include the equipment for which authorisation was given by the Crown Estate pursuant to an application made prior to 1 April 2007.

[18] Subsequent classes for which development is granted by the 2012 Order include 21B (the replacing of an existing feed barge) and 21C (the replacing of an existing top net or support for a top net). In 21D the placing or assembly of equipment within the area of an existing fish farm required temporarily in connection with the operation of the fish farms is permitted.

Issues 1 and 2: the effect of the s.75 agreement The petitioner’s submissions

F

G

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[19] The first issue with which I require to deal is a fundamental one upon which the first two propositions set out above largely depend. It was argued on behalf of the petitioner that the permanent removal of the fish farms at Etive 1 and 5 was an essential condition on which planning permission for Etive 6 was granted. The need for rationalisation of existing fish farm activity in Loch Etive, as set out in the relevant plans and policies, required that both Etive 1 and 5 be permanently removed in the event of Etive 6 being established. Only then would conformity with those plans and policies be achieved.

[20] The terms of the s.75 agreement did not, however, achieve permanent removal. It obliged Dawnfresh to remove their equipment from the locations of Etive 1 and 5 but planning permission had been granted in perpetuity for the operation of fish farms at Etive 1 and 5 under the 2011 Order. So a party other than Dawnfresh, such as a leaseholder from the Crown Estate of the seabed at the location of Etive 1 and 5, who had obtained the necessary additional consents, would be entitled to continue the operation and, in any event, in terms of the 2012 Order, had permission to replace the equipment

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removed by Dawnfresh under the s.75 agreement and to operate fish farms at those locations. Each of the current leaseholders from the Crown Estate at Etive 1 and 5 had intimated their intention to do so and were entitled to do so under the existing planning permission. Accordingly, the whole rationale of the grant of the permission for Etive 6 was fatally undermined.

[21] Sir Crispin accepted that the existing permission was limited to the use of the equipment placed there prior to April 2007 but until terminated or until there was a material change of use (s.26(6AA)), that permission persisted and enured for the benefit of the land (s.44(1)). He argued that it was permissible to replace that equipment under the 2011 Order and that could be done by anyone who obtained the necessary licences from SEPA and Marine Scotland and a lease from the Crown Estate, provided that no material change of use was involved. If the position were otherwise, the operators of the old equipment on sites consented by the 2011 Order, would be able to continue the operation of the farms with ageing and potentially dangerous equipment and that would not be a sensible construction of the provisions concerned. Regulation 3(5) of the 2011 Order indicated that it was the intention of the legislative scheme to allow replacement.

[22] Even if he was wrong about that, Sir Crispin went on to argue that the terms of the 2012 Order permitted the replacement of “an existing finfish pen” in the same location. By virtue of the 2012 Order, even although Dawnfresh were obliged under the s.75 agreement to remove their equipment, another operator would be entitled to replace that equipment with new equipment and continue to operate the fish farm under the terms of permission granted under the 2011 Order on obtaining the necessary consents.

[23] Permission had been granted by the 2011 Order permanently and the 2012 Order gave permission for replacement of that equipment. Accordingly, the provision in the s.75 agreement at 4.1 to the effect that the “existing equipment at Etive 1 is removed by Dawnfresh” and at 4.2 that “Upon the expiry of the Etive 5 lease on 31 December 2017 Dawnfresh shall remove the existing equipment at Etive 5” did not satisfy or fulfil the council’s fundamental requirement in granting permission that the agreement should provide for “the permanent removal of the equipment from Etive 1 and the removal of existing farm equipment from Etive 5 on or before 31 December 2017” at p.25 of the minutes of meeting of Planning, Protective Services and Licensing Committee of the respondents dated 29 January 2014. The s.75 agreement and the planning permission granted were therefore invalid.

[24] My attention was drawn to the definition of “finfish pen” in para.(5) of Class 21A as meaning a tank or cage “used for the purposes of fish farming”.

It did not say “in use” for that purpose at the time of replacement and envisaged the old equipment being removed some time prior to the replacement. The fact that the equipment had been removed or was to be removed did not mean that the fish farm no longer existed (Schwerzerhof v Wilkins).

B

C

D

E

F

The respondent’s submissions

[25] The respondents did not dispute the factual background described above.

Nor was there any suggestion that different or additional statutory provisions were relevant to this matter. The position of the council was that the s.75 agreement was effective in controlling the operation of fish farms at Etive 1 and 5 in the future in circumstances where Etive 6 had consent. That was because the existing permission for Etive 1 and 5 only extended to the use of equipment referred to in s.26AA(1)(b) of the Act. Since Dawnfresh are obliged by the s.75 agreement to remove the whole of that equipment, anyone

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intending to place or assemble any replacement equipment at those sites would require planning permission to do so because such placing or assembling would constitute development by virtue of s.26(6) of the Act. The permission granted by the 2012 Order would not give authority for such works. Upon the removal of all of Dawnfresh’s equipment at those sites, no fish farms would exist there and thus the placing or assembly of a fishpen would not “replace” an existing finfish pen in the area of an existing fish farm as permitted by that order. While the Crown Estate’s participation in the s.75 agreement would have put the matter beyond any doubt, it was not necessary that they were a party to it. The requirement on Dawnfresh to remove their equipment permanently provided the necessary mechanism to trigger the need for an application for permission to operate a fish farm at either site by any person after that removal. Mr Mackay also submitted that if “wholesale” replacement of fishpens was intended, that would give rise to significant environmental effects and a screening process would be required under art,3(1) and (8) of the 1992 Order. Mr Findlay advanced similar submissions on behalf of Dawnfresh.

Discussion

[26] In my opinion, the submissions of the council and Dawnfresh are to be preferred. While it is no doubt correct to say that the fish farms at Etive 1 and 5 have the benefit of permission granted by the 2011 Order, that permission is limited by s.26AA(1)(b) to the operation of the fish farms there using equipment placed prior to April 2007 (the original equipment) owned by Dawnfresh. Further, Dawnfresh can replace the equipment described in Pt.6A of the 2012 Order, namely finfish pens (Class 21A), feed barges (Class 21B), top net and supports (Class 21C).

[27] The s.75 agreement provides for the removal of all that equipment.

Therefore, once Dawnfresh comply with the terms of paras 4.1 and 4.2 of the agreement, no fish farm equipment will exist at the two sites. In my opinion, that will bring the deemed permission under the 2011 and 2012 Orders to an end. The operation of the fish farms using the original equipment authorised by ss.26(1) and 26AA(1) and by the 2011 Order will no longer be taking place. Further, it will no longer be possible to replace any of the equipment described in the 2012 Order since there will be no “existing fish farm” upon the removal of all of the original equipment (see para.1(1) of Class 21A and 21B of the 2012 Order). The placing or assembly of equipment at those sites, once paras 4.1 and 4.2 have been implemented, would constitute development under s.26(6) of the Act requiring the grant of planning permission. Article 3(5) of the 2011 Order only provides for the carrying out of works on the original equipment as are necessary to remove the danger or obstruction thereby constituted. It does not permit replacement of equipment.

[28] In these circumstances, I do not consider it to be necessary that the Crown Estate is a party to the s.75 agreement to provide that no lease should be granted by it of the seabed at those sites. After the removal of the existing equipment, it will be necessary for anyone proposing to place fish farming equipment at Etive 1 or 5 to obtain planning permission to do so and without such permission no lease from the Crown Estate would allow such activity.

[29] Sir Crispin cited Schwerzerhof v Wilkins as illustrating the correct approach to deciding whether the fish farms could be said to exist at the time of replacement of the equipment. In that case an underground part of a building had been used as a bakehouse for many years prior to the commencement of the Factory and Workshop Act 1895 on 1 January 1896. By

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s.27 of that Act it became a criminal offence to operate an underground bakehouse unless it was so used on that date. The landlord had been convicted under the section. The tenant had vacated the premises in October 1895.

Work by the owner to put them into repair thereafter was completed at Christmas that year while they were advertised to be let as a bakehouse and a new tenant started using them in February 1896 and continued to do so down to October 1897. It was held that the premises were being used as a bakehouse at the commencement of the Act. That was so even though at that time they were not actually being so used. Mr Justice Wright appears to have had some doubt about the matter but relied on the fact that there was no interruption of use as a bakehouse. Mr Justice Darling, looking at the matter from the point of view of the landlord (who was trying to let the premises as baker’s premises at the relevant date) considered that he was as much using it as a bakehouse as if he had been in actual occupation of it.

[30] The circumstances of the case are far removed from the present and it is not easy to draw any guiding principles from it which are applicable to the present case. It is concerned with the use of a part of a building at a given time not whether it existed. As Mr Mackay asked, what would the position have been, if at the relevant date, the bakehouse had not existed at all? I think in that situation, there would have been no question of its being used as a bakehouse or anything else and no question of a prosecution could have arisen.

In this case, the equipment of Etive 1 has already been removed by Dawnfresh with the intention of quitting that site to start another. The equipment of Etive 5 will be removed by Dawnfresh at the expiry of Mrs Troughton’s lease from the Crown Estate on 31 December 2017, again with the intention of quitting that site. I do not consider that, on removal of the original equipment, it can be said that either fish farm will exist. There is or will be nothing on the water, no farming of fish is or will be being carried out and there is or will be nothing at those sites to replace.

[31] There is a further aspect to this matter. The petitioner argued that the leaseholders would be able to replace the fish farm under the 2012 Order since the 2011 Order granted permission in perpetuity to operate a fish farm at both sites and the 2012 Order allowed the replacement of the equipment. I consider that the 2012 Order only permits the replacement of certain items of fish farm equipment namely the finfish pens, the feed barges and top nets and supports. It permits no other items of equipment necessary for the operation of a fish farm to be replaced. I note from the terms of the joint minute that parties could not agree as to whether anchors on the seabed constituted “equipment” for the purposes of s.26(6) of the Act or the 2012 Order. I was not addressed on this issue and thus cannot express a concluded view upon it.

But it seems to me that the meaning of equipment must include items such as chain and anchors which are necessary to fix the fish pens in the position on the seabed for which consent is granted and which is in compliance with the lease of the seabed from the Crown Estate.

[32] So, even if a fish farm could be said to exist after removal of all the equipment in place, another operator would not be permitted, under the 2012 Order, to replace the anchors and chains which secure the fish pens or barges to the sea bed. The 2012 Order is limited in its scope as to what items can be replaced in an existing fish farm. The placing of other items such as anchors and chain would constitute development under s.26(6).

[33] Further, although Sir Crispin argued that the council had required the permanent removal of the equipment at both sites, that is not exactly what was done. What the council [is] recorded as having required of the s.75 agreement

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is one which achieved “the permanent removal of the Applicant’s existing fish farm equipment” at Etive 1 and “the removal of existing fish farm equipment from the site of Etive 5” (p.25 of the minutes of the meeting of 29 January 2014 emphasis mine). It was therefore the existing equipment belonging to Dawnfresh that was to be permanently removed. The council did not require that no fish farm equipment should be placed at those sites in perpetuity.

[34] Mr Mackay submitted that the 2012 Order did not give permission to wholesale replacement of finfish cages. Article 3(8) of the 1992 Order provides that Scheds.1 and 2 development within the meaning of the Town and Country Planning (Environmental Impact Assessment) (Scotland) Regulations 2011 (the EIA Regulations) is not permitted unless certain screening procedures are carried out. While it may be the replacement of multiple pens or feed barges would trigger the requirements of art.3(8), no information was provided which would allow me to conclude that the thresholds or criteria set out in Sched.2, cols 1 or 2 of the EIA Regulations would be exceeded.

[35] I therefore reject the petitioner’s arguments that the council’s decision to grant the application on completion of the s.75 agreement was based on an error of law. The removal of the original equipment from Etive 1 and 5 brings the planning permission under the 2011 Order for the operation of fish farms there to an end. No replacement of fish farming equipment would be authorised without the grant of permission from the council.

Issue 3: the future of the sites at Etive 1 and 5

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[36] Sir Crispin argued that, because a leaseholder from the Crown Estate could apply for planning permission for a fish farm in the future at Etive 1 and 5 and the council cannot tie its hands to refuse any such application, the s.75 agreement is not effective in guaranteeing that no permission to operate those sites in the future could be granted. He cited Stringer v Minister for Housing and Local Government at p.1289 where Mr Justice Cooke found an agreement ultra vires because the planning authority had bound itself to disregard considerations to which [it was] required to have regard when considering planning applications.

[37] The respondents argued that the council had not tied its hands and accepted that any such application would have to be considered on its merits.

Mr Mackay accepted that while Etive 6 is in operation along with the other fish and mussel farms in the loch, the addition of Etive 1 and 5 would not comply with the development plan. But there was no “sterilisation” of Etive 1 or 5 in perpetuity. The requirement of the council related to the permanent removal of Dawnfresh’s equipment only. The case of Stringer could be distinguished since the council had not entered into any agreement to disregard material considerations.

Discussion

[38] First, I do not consider that the council meant to achieve a situation whereby no permission could ever be granted for fish farms on those sites.

Nor does [its] decision have that effect. As stated above that is not what the minutes record. The council cannot bind itself not to grant permission and a term to that effect in a s.75 agreement would be ultra vires as set out in Stringer. But there is no such indication in the s.75 agreement here. It should be borne in mind that in Stringer it was accepted on behalf of the planning authority that the agreement it entered into meant that “development at Brereton Heath and at other places was to be resisted” (see p.1289).

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Friends of Loch Etive v Argyll and Bute Council (OH)

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[39] Second, it is necessary to look at the policy context [under] which the grant of permission for Etive 6 was made and the terms of the decision to grant permission. Local Plan Policy LP AQUA 1 gives general support for finfish farming as long as there is no significant adverse effect directly, indirectly or cumulatively on the 12 considerations there set out. These include the “landscape, character, scenic quality and visual amenity”, protected sites and species and navigational and recreational interests. Any coastal framework plan is a material consideration. The Loch Etive Integrated Coastal Zone Management Plan (ICZMP) provides under Future development at 6.1.8 that: “Due to the amount of existing sites in Loch Etive, the loch is either at or approaching landscape capacity in many places, therefore little capacity for new development has been identified.”

[40] It is considered that there is existing unused capacity in the loch and that there will be opportunities to “maximise the production of both trout and mussels in the loch through rationalisation of existing sites”. Accordingly, Policy LE AQ1 provides support for the consolidation and reorganisation of existing sites.

[41] It was against that policy background that the planning officer assessed the application for Etive 6. On pp.29 and 30 of his report he stated that the addition of the new finfish farm of the scale proposed at Etive 6 would impinge on the landscape character and visual amenity and increase certain environmental risks. Without measures to consolidate and rationalise existing sites, the proposal would not conform to the development plan or ICZMP. The surrender of some of their existing sites, however, would bring the proposal into conformity with the development plan. Thus the planning officer contended that, if Etive 1 and 5 were removed, the application for Etive 6 would become acceptable. Not only would the sites at Etive 1 and 5 be cleared but the existing mussel farm at Etive 6 would also be removed. So there would be a concentration of farming at Etive 6 in return for the removal of Etive 1 and 5 and the mussel farm at Etive 6.

[42] As was pointed out for the council, the decision contained in minutes of the meeting of 29 January 2014 provides that “the applicant’s existing fish farm equipment” at Etive 1 will be permanently removed and that at Etive 5 will be removed following the expiry of the existing site leasing obligations in order to achieve the rationalisation “of fin fish farming operations conducted by the applicants at Loch Etive”. It was not decided that there would be no fish farm at Etive 1 and 5 in the future. Any application for a new fish farm at those sites, assuming the continued operation of Etive 6, would have to be assessed against the existing policy framework and the planning history of these sites. It might be very difficult to conclude, in the current state of affairs, that any proposal to re-establish fish farms at Etive 1 or 5 could be said to conform to the development plan or other material considerations when the ICZMP specifically found “little capacity for new development” and the rationalisation involved in the establishment of Etive 6 had been carried out.

If at the time of any new application at Etive 1 or 5 Etive 6 did not exist, the position would of course be different.

[43] The petitioner is reading into the council’s decision a requirement that no fish farms are ever to be located at the sites of Etive 1 and 5 in the future.

That is not what was decided. What cannot happen is that Dawnfresh operate all three sites. If, for example, Dawnfresh or its successors were to cease operations at Etive 6, there would be no reason why an application to

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re-establish a farm at Etive 1 or 5 could not be made and considered on its merits. Of course, if someone applied for planning permission at Etive 1 and/ or 5 while 6 was in operation at its current capacity, as they would be entitled to do, the council would also have to consider such an application on its merits but against the background, first, that the ICZMP of March 2011 found that “the loch is either at or approaching landscape capacity in many places, therefore little capacity for new development has been identified” and secondly, that the current permission has achieved a degree of rationalisation or consolidation as envisaged and encouraged by the ICZMP. It might be therefore that refusal would be justified. Applications for additional farms in other parts of Loch Etive would have to be viewed independently and on their own merits also, having regard to all these factors.

Issue 4: the CAR consents

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[44] Clause 4.5 of the s.75 agreement provides as follows: “Dawnfresh shall, subject to the regulatory requirements of SEPA, maintain and fully comply with the terms of the CAR consents and shall not surrender or transfer the CAR consents nor seek or consent to such transfer or surrender of them without the prior written consent of the Council” [45] In [its] answers to the petition, the council contended that cl.4.5 of the s.75 agreement did not seek to duplicate the statutory regime under the CAR Regulations. It was stated that esto cl.4.5 was invalid or unenforceable, the legality of the remaining parts of s.75 agreement were unaffected (cl.5.2). In [its] written submissions at para.9 it is accepted that there may be circumstances where the licence holder may be obliged to surrender the licence granted by SEPA regardless of the consent or otherwise of the council. To that extent, it is accepted that the provisions of this clause could not be relied upon.

[46] The council rely, however, on the terms of cl.5.2 which is to the following effect: “If any provision of this instrument shall be held to be invalid, illegal or unenforceable the validity, legality and enforceability of the remaining provisions shall not in any way be deemed thereby to be affected or impaired.”

E It is argued that the remaining provisions and in particular cls.4.1 and 4.2 are sufficient to ensure that any future operator of Etive 1 or 5 would require to apply for planning permission.

[47] In the light of my conclusions above and the effect of the removal of the existing equipment at Etive 1 and 5, I agree that the unenforceability of cl.4.5 does not affect the validity of remainder of the s.75 agreement.

F

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Issue 5: the effect of the s.75 agreement on third parties’ rights

[48] The petitioner argued that the s.75 agreement purported to interfere with the rights of third parties which were of value. In particular, statement 13 of the petition avers that in lieu of the Crown Estate or Lorne Fisheries being parties to the s.75 agreement, cl.4.4 attempted to restrain the future use of Etive 1 by “unlawfully interfering with the Etive 1 agreement” and to “place obligations on both Lorne Fisheries and Mr Campbell-Preston without consent”. That agreement is one between Dawnfresh (the assignees of the original party Kaimes Fish Farming Ltd), Robert Campbell-Preston and Lorne Fisheries dated April 2010 and concerns the management of the

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Inverawe seabed site and the provision of specific quantities of trout from Dawnfresh up to a certain tonnage to a smokehouse run by Lorne Fisheries Ltd. It subsists until 30 June 2018. Clause 4.4 of the s.75 agreement provides as follows: “Dawnfresh shall comply fully with, and not breach, their obligations under the Etive 1 agreement and shall not terminate the Etive 1 agreement prior to Thirtieth June Two Thousand and Eighteen. Dawnfresh shall not enter into any variation of the Etive 1 agreement without first having obtained the Council’s consent to the proposed variation.”

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That provision, it was argued, represented an unacceptable and unwarranted interference in a private commercial agreement to which the council were trying to make themselves a party without the consent of those involved in it.

[49] The council argued that no interference was involved nor was it the case that any obligations were placed on Lorne Fisheries or Mr CampbellPreston. In any event, even if cl.4.4 was illegal or unenforceable, that did not invalidate the rest of the s.75 agreement.

C

Discussion

[50] Clause 4.4 seeks to ensure that Dawnfresh will comply with the terms of the Etive 1 agreement and will not terminate it prior to its stated expiry date.

As such it is difficult to regard it as in any way objectionable to any of the signatories. Insofar as it seeks to prevent variation without the council’s prior consent, even if unenforceable, it would not invalidate the remaining provisions and in particular, cls.4.1 and 4.2 which are the operative and crucial ones. In any event, while the petitioner asserts that this provision involves some interference in the private contractual rights of third parties, it is notable that no objection is raised by those third parties in the context of these proceedings although the petition was intimated on Lorne Fisheries and Mr CampbellPreston. Nor, so far as I am aware, have any of those parties attempted to challenge the s.75 agreement in any way. If a proposed variation of the Etive 1 agreement was prevented by cl.4.4 the s.75 agreement to the detriment of one of the parties, they could seek redress against Dawnfresh. As Mr Findlay pointed out, the obligation upon Dawnfresh to supply fish to Lorne Fisheries can be fulfilled from their site at Etive 6.

[51] Sir Crispin expanded his submissions in this area by arguing that the leaseholders from the Crown Estate own a valuable asset in form of their lease which the s.75 agreement destroys. It is correct to say that on removal of the existing equipment, planning permission will lapse and thus any value of the lease of the seabed to the lease holder will disappear. However, the Etive 5 lease expires on 31 December 2017 and cl.4.2 does not require the removal of the existing equipment until that date. The s.75 agreement [in] respect of Etive 1 provides that the Etive 1 agreement will not terminate prior to the termination date specified therein.

[52] The council have not decided never to granted permission at Etive 1 or 5. Neither leaseholder is precluded from applying for planning permission in the future. But I do not consider that a current leaseholder has any “right” to renewal of a lease from the Crown Estate to which the council required to have regard in deciding Dawnfresh’s application for planning permission at Etive 6. The grant of a lease is a matter for the Crown Estate which applies certain criteria in the assessment of applications. In an email from the aquaculture operations manager of the Crown Estate dated 16 January 2014 those criteria are set out. Any renewal of a lease is dependent on planning

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permission being in place. It also appears that the applicant must intend to operate the farm.

[53] But even if the lapse of planning permission in respect of the sites at Etive 1 and 5 could be said to have adverse consequences on third parties in relation, for example, to the prospects of obtaining renewal of a lease from the Crown Estate, that does not in my view render the grant of planning permission for another site or the operative terms of any s.75 agreement open to review in this court. That consequence is one which flows from what I consider to be a proper exercise of the discretionary powers of the planning authority under the planning regime. The local plan encourages fish farming in Policy LP AQUA 1 and provides that the coastal framework plan is a material consideration. The Loch Etive ICZMP identifies the consolidation and rationalisation of existing fish farms as offering the greatest opportunity to maximise the production of trout farming in the loch (para.6.1.8). Dawnfresh, as the applicants for permission at Etive 6, were willing to undertake the obligations in the s.75 agreement required by the council in order to achieve that rationalisation. The council have decided to rationalise fish farming activity by the grant of planning permission for Etive 6 and the terms of the s.75 agreement. I am unable to conclude that those decisions are illegal, ultra vires or in any way unreasonable.

It is not for this court to interfere in the exercise of the planning authority’s discretion in this regard.

Disposal

D

[54] I will therefore repel the petitioner’s pleas-in-law and sustain the respondents’ third and fourth pleas-in-law and the third, fourth and fifth pleas-in-law for the interested party and will dismiss the petition. I will reserve meantime all question of expenses.

For the petitioner: Agnew of Lochnaw QC, MacDougall, instructed by Davidson Chalmers LLP, Solicitors, Edinburgh.

For the respondents: Mackay, instructed by Brodies LLP, Solicitors, Edinburgh.

For the interested party: Findlay, instructed by DLA Piper Scotland LLP, Solicitors, Edinburgh.

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A SUPREME COURT

16 December 2015

Lord Neuberger (President), Lord Mance, Lord Reed, Lord Carnwath and Lord Hodge TRUMP INTERNATIONAL GOLF CLUB SCOTLAND LTD SCOTTISH MINISTERS

Appellant Respondents

B

Town and country planning—Windfarm—Planning permission granted to applicant who was not licence holder to generate electricity— Whether competent—Whether conditions of consent void for uncertainty—Electricity Act 1989 (c.29), s.39, Sched.9, para.3 Statutory interpretation—Planning permission for windfarm— Whether Electricity Act contains necessary implication that only licence holder may be granted s.36 consent—Examination of policy background—Electricity Act 1989 (c.29), s.39, Sched.3, para.9 Paragraph 3 of Sched.9 to the Electricity Act 1989 provides: “(1) In formulating any relevant proposals, a licence holder or a person authorised by an exemption to generate, distribute, supply or participate in the transmission of electricity— (a) shall have regard to the desirability of preserving natural beauty, of conserving flora, fauna and geological or physiographical features of special interest and of protecting sites, buildings and objects of architectural, historic or archaeological interest; and (b) shall do what he reasonably can to mitigate any effect which the proposals would have on the natural beauty of the countryside or on such flora, fauna, features, sites, buildings or objects.

(2) In considering any relevant proposals for which his consent is required under section 36 or 37 of this Act, the Secretary of State shall have regard to— (a) the desirability of the matters mentioned in paragraph (a) of subparagraph (1) above; and (b) the extent to which the person by the proposals were formulated has complied with his duty under paragraph (b) of that sub-paragraph.

(3) Without prejudice to sub-paragraphs (1) and (2) above, in exercising any relevant functions, each of the following, namely, a licence holder, a person authorised by an exemption to generate or supply electricity and the Secretary of State shall avoid, so far as possible, causing injury to fisheries or to the stock of fish in any waters.”

The petitioner challenged the grant of consent by Scottish Ministers for the development and operation of a windfarm in Aberdeen Bay. It contended that the proposed windfarm development would materially diminish the amenity of the golf resort which it had developed at Menie Estate in Aberdeenshire. The grounds of challenge were (1) because the Scottish Ministers had no power under the 1989 Act to grant consent to the windfarm application as only a licence holder or an exempt person may apply and be granted a construction consent under s.36 of that Act; and (2) because condition 14 of the consent (which requires the submission and approval of the design statement) was void for uncertainty.

The petitioner relied on the wording of para.3 of Sched.9 to the 1989 Act in support of its contention that only the holder of a licence to generate,

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transmit, or supply electricity, which was granted under s.6 of the 1989 Act or a person exempted under s.5 of that Act from holding such a licence, may apply for a construction consent under s.36 Counsel for the petitioner submitted that para.3 of Sched.9 gave rise to a necessary implication that only licence holders or exempt persons may be granted a s.36 consent. The statutory policy was to secure only operators who were suitably qualified in the electricity generating industry may apply for consent to construct a generating station or other development which was a relevant proposal.

Counsel for the respondent submitted that it had been the established practice in both British jurisdictions for commercial organisations to apply for and obtain s.36 consent before they seek a licence to generate electricity under s.6 of the 1989 Act or an exemption under s.5. No evidence was presented that this practice had resulted in unsuitable persons applying for and obtaining s.36 consents or in any way failed to protect the environment.

Condition 14 of the s.36 consent provided, inter alia, ‘Prior to the commencement of the development a detailed design statement must be submitted by the company to the Scottish Ministers for the written approval, after consultation by the Scottish Ministers with SNH, Marine and Coastguard Agency, Northern Lighthouse Board, National Air Traffic Services and any other advisers as may be required at the discretion of the Scottish Ministers.

The design statement must provide guiding principles for the deployment of the wind turbines. This plan must detail: (a) Layout location for each phase and each turbine; and (b) Turbine height, finishes, blade diameter and rotation speed across each phase, rows and individual turbine locations; and (c) Lighting requirements (navigation and aviation) for each turbine/row or as the case may be, phase including any anemometer mast; and (d) Further detailed assessment of visual impacts to inform the detailed layout and design of each location and phase of the deployment centre from selected viewpoints to be agreed with the Scottish Ministers and any such other advisers as may be required at their discretion.

“Reason: to set out design principles to mitigate, as far as possible, the visual impact of the turbines.”

Counsel for the petitioner submitted that the s.36 consent was invalid because condition 14 was both unenforceable and also so uncertain that it was irrational.

There was no mechanism by which the Scottish Ministers could force the developer to construct a windfarm in accordance with the design statement.

He argued that in contrast with conditions 18, 24 and 25 there was no express statement that the developer must construct and operate the development in accordance with its terms. In any event it was void for uncertainty Held (1) that the structure and language of the 1989 Act did not support the petitioner’s case which depended upon the court’s acceptance that Parliament had sought to limit who might apply for s.36 consent by using circumlocution and implication and there was nothing in the background to the 1989 Act which required the court to take a different view of the relevant statutory provisions (paras 13, 14); (2) that while the court would understandably exercise great restraint in implying terms into public documents which have criminal sanctions and there was no principled reason for excluding implication altogether and if condition 13 had not provided that the construction method statement was to contain information about the design statement but, like condition 24, and required only cross-references to it, the inference would have been readily drawn that the conditions of the consent read as a whole required the developer to conform to the design statement in the construction of the windfarm (paras 35, 37); and

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2016 S.C.L.R. Trump International Golf Club v Scottish Ministers (UKSC) 69 (3) that the flexibility conferred on the Scottish Ministers in each of the conditions to modify the way in which the windfarm was constructed and operated did not enable them to alter the nature of the approved development (para.39), and appeal dismissed.

Observed (per Lord Hodge) that differences in the nature of documents would influence the extent to which the court might look at the factual background to assist interpretation. Thus third parties might have an interest in a public document such as a planning permission or consent under s.36 of the 1989 Act, in contrast with many contracts as a result, the shared knowledge of the applicant for permission and the drafter of the condition did not have the relevance to the process of interpretation that the shared knowledge of parties to a contract, in which there might be no third-party interest, had.

There was only limited scope for the use of extrinsic material in the interpretation of a public document, such as a planning permission or a s.36 consent and it was also relevant to the process of interpretation that a failure to comply with the condition in a public law consent might give rise to criminal liability (para.33).

Observed (per Lord Carnwath) that it was not right to regard the process of interpreting a planning permission as differing materially from that appropriate to other legal documents. As had been seen, that was not how it had been regarded by Lord Denning in Fawcett Properties Ltd v Buckingham County Council. Any such document had to be interpreted in its particular legal and factual context. One aspect of that context was that a planning permission was a public document which might be relied on by parties unrelated to those originally involved (para.66).

R (Midcounties Co-operative Ltd) vWyre Forest District Council [2009] EWHC 964 (Admin) and Hubert v Carmarthenshire County Council [2015] EWHC 2327 (Admin) distinguished.

Sevenoaks District Council v First Secondary of State [2004] EWHC 771 (Admin); [2005] 1 P. & C.R. 13; Hulme v Secretary of State for Communities and Local Government [2011] EWCA Civ 638 and Telford And Wrekin Council v Secretary of State for Communities and Local Government [2013] EWHC 79 (Admin); [2013] J.P.L. 865 doubted in part.

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Cases referred to: Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10; [2009] 1 W.L.R. 1988; [2009] 2 All E.R. 1127 Carter Commercial Developments Ltd v Secretary of State for Transport, Local Government and the Regions [2002] EWCA Civ 1994; [2003] J.P.L. 1048 Crisp from the Fens Ltd v Rutland County Council (1950) 114 J.P. 105; (1950) 1 P. & C.R. 48 Fawcett Properties Ltd v Buckingham County Council [1961] A.C. 636; [1920] 3 W.L.R. 831 Hubert v Carmarthenshire County Council [2015] EWHC 2327 (Admin) Hulme v Secretary of State for Communities and Local Government [2011] EWCA Civ 638 Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2004] UKHL 46; [2005] 1 All E.R. 667 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C. 749; [1979] 2 W.L.R. 945; [1997] 3 All E.R. 35 Marks & Spencer plc v BNP Paribus Trust Company (Jersey) Ltd [2015] UKSC 72; [2015] 3 W.L.R. 1843 Marley v Rawlings [2014] UKSC 51; [2015] A.C. 157; [2014] 3 W.L.R. 1015 R v Ashford Borough Council, ex parte Shepway District Council [1999] P.L.C.R. 12

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R (Midcounties Co-operative Ltd) v Wyre Forest District Council [2009] EWHC 964 (Admin) Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 W.L.R. 2900; [2012] 1 All E.R. 1137 Sevenoaks District Council v First Secretary of State [2004] EWHC 771 (Admin); [2005] 1 P. & C.R. 13 Telford and Wrekin Council v Secretary of State for Communities and Local Government [2013] EWHC 79 (Admin); [2013] J.P.L. 865 Trustees of the Walton-on-Thames Charities v Walton and Weybridge Urban District Council (1970) 21 P. & C.R. 411.

On 16 December 2015 the following opinion was issued.The full circumstances of the case and the arguments of counsel are to be found in the opinion of Lord Hodge.

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LORD HODGE (WITH WHOM LORD NEUBERGER, LORD MANCE, LORD REED AND LORD CARNWATH AGREE) 1. Trump International Golf Club Scotland Ltd (TIGC) has developed a golf club and resort at Menie Estate and Menie Links, Balmedie, Aberdeenshire.

In 2011 Aberdeen Offshore Wind Farm Ltd (AOWFL) applied for consent under s.36 of the Electricity Act 1989 (the 1989 Act) to construct and operate the European Offshore Wind Deployment Centre in Aberdeen Bay, off the coast of Blackdog, Aberdeenshire. The application concerned the construction of up to 11 wind turbines, which might be of different sizes, with a maximum power generation of 100MW. The proposed windfarm, if constructed, would be located about 3.5 kilometres from the golf resort and would be seen by people using the resort. TIGC, concerned that the proposed windfarm development would materially diminish the amenity of the golf resort, opposed the application. On 26 March 2013 the Scottish Ministers granted consent for the development and operation of the windfarm subject to conditions. TIGC has challenged that decision on various grounds in the courts in Scotland without success. Two grounds of challenge remain in this appeal.

2. The two grounds on which TIGC now seeks to have the consent quashed are: (i) because the Scottish Ministers had no power under the 1989 Act to grant consent to the windfarm application as only a licence holder or an exempt person may apply and be granted a construction consent under s.36 of that Act; and (ii) because condition 14 of the consent (which requires the submission and approval of a design statement) is void for uncertainty.

I shall refer to the first ground as “the s.36 challenge” and the second ground as “the condition 14 challenge”.

The s.36 challenge

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3. The s.36 challenge raises a question of statutory construction. In essence, TIGC relies on the wording of para.3 of Sched.9 to the 1989 Act in support of its contention that only the holder of a licence to generate, transmit, or supply electricity, which is granted under s.6 of the 1989 Act, or a person exempted under s.5 of that Act from holding such a licence, may apply for a construction consent under s.36. Paragraph 3 of Sched.9 (so far as relevant) provides: [His Lordship quoted the paragraph as set out above and continued:]The references

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2016 S.C.L.R. Trump International Golf Club v Scottish Ministers (UKSC) 71 to the Secretary of State in relation to s.36 applications in Scotland should be treated as references to the Scottish Ministers: Scotland Act 1998, s.117.

4. Section 36 of the 1989 Act provides, inter alia, that a generating station shall not be constructed, extended or operated except in accordance with a consent which in England and Wales is granted by the Secretary of State and in Scotland by the Scottish Ministers.

5. Mr John Campbell QC for TIGC submits that para.3 of Sched.9 to the 1989 Act gives rise to a necessary implication that only licence holders or exempt persons may be granted a s.36 consent. Were it otherwise, there would be two classes of s.36 applicant, namely those with duties under para.3(1) of Sched.9 and those without such duties. There is, he submits, no reason for two such classes. Secondly, under para.3(2) of Sched.9, the Scottish Ministers when considering any relevant proposals which require a s.36 consent, are to have regard to the extent to which the applicant has complied with his duty under para.3(1)(b) of Sched.9. That presupposes that the applicant is under such a duty. Only licence holders and exempt persons are under those duties.

If an applicant were able to obtain a s.36 consent and construct a generating station or other relevant proposal before he obtained a licence to generate, he could complete a significant development before he became subject to the environmental duties of para.3 of Sched.9.

6. Looking more generally at statutory policy, Mr Campbell submits that the statutory policy is to secure that only operators who are suitably qualified in the electricity generating industry will apply for consent to construct a generating station or other development which is a relevant proposal. There is, he submits, a logical progression by which, first, an applicant establishes his competence to generate electricity by obtaining a s.6 licence or a s.5 exemption, secondly, he formulates his proposals for the development in a s.36 application, thirdly, he prepares and publishes a statement (under Sched.9, para.4) setting out the manner in which he will perform the Sched.9, para.3(1) duties, before, finally, he implements the s.36 consent by constructing the relevant proposal.

7. Like Lord Doherty and the First Division of the Inner House of the Court of Session, I am satisfied that this challenge fails. I examine first the structure of and the language used in the 1989 Act and then discuss the wider policy background to the Act.

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8. The relevant starting-point is s.4 of the 1989 Act, which makes it a criminal offence to generate electricity or to carry out other specified activities without authorisation by a licence. Section 5 empowers the Secretary of State to grant an exemption from the requirement of a licence. Section 6 empowers the Gas and Electricity Markets Authority to grant, among others, a licence to generate electricity. There is no express prohibition in s.4 from constructing a generating station without a licence, as one might have expected if only licence holders or exempt persons alone were to be given a s.36 consent.

9. Section 36 places no restriction on who may apply for a consent to construct a generating station. Neither does Sched.8, which s.36(8) relates to consents under s.36 and also consents to the installation of overhead lines under s.37. Schedule 8 sets out the procedures to be followed when seeking or objecting to applications for consent or challenging a decision whether to hold a public inquiry. Again, one might have expected an express restriction on the applicants for a s.36 consent in these provisions if one were intended.

10. Section 38 provides:

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“The provisions of Schedule 9 to this Act (which relate to the preservation of amenity and fisheries) shall have effect.”

Paragraphs 1 and 2 of Sched.9 relate to the preservation of amenity in England and Wales and paras 3 and 4 contain similar provisions for the preservation of amenity in Scotland. Two considerations point away from Mr Campbell’s interpretation. First, neither para.1(1) or 3(1) contains any express restriction on who may apply for a s.36 consent for the construction of a generating station which is large enough to be a “relevant proposal”. If there were to be such a restriction, I would have expected an express provision. Secondly, not all s.36 applications are affected by Sched.9, but only “relevant proposals”, which are defined in Sched.9, para.1(3) as the construction or extension of a generating station with a capacity of not less than 10MW. Offshore generating stations with a capacity of 1MW or more require a s.36 consent (the Electricity Act 1989 (Requirement of Consent for Offshore Generating Stations) (Scotland) Order 2002 ((SSI 2002/407), art.3). But they are not relevant proposals to which Sched.9 applies if their capacity is below 10MW. As offshore installations with a capacity of under 10MW can have a significant impact on the environment and amenity, this limitation suggests that Sched.9 was not intended to be a regime for controlling the environmental effects of constructing generating stations but, as I suggest in para.20 below, is a survivor from prior legislation when the electricity generating market was organised differently.

11. In my view, Mr Campbell’s strongest point is that subpara.3(2)(b) requires the Scottish Ministers, when considering any relevant proposals in a s.36 application, to have regard to the extent to which the licence holder or person authorised to generate by an exemption has complied with his subpara.3(1)(b) duties to mitigate adverse effects. But, in the absence of any indication in subpara.3(1), either express or arising by necessary implication, that only a licence holder or person authorised by exemption could apply under s.36 to construct a generating station which was a relevant proposal, I do not attach significance to this point. In my view subpara.3(2) requires the Scottish Ministers to have regard to the environmental matters in subpara.3(1) (a), whoever is the s.36 applicant. This is supported by the opening words of subpara.3(2): “In considering any relevant proposals for which (their) consent is required.” Subparagraph 3(2)(b) makes sense in this context if one construes it as applying only to those applicants who are under a duty under subpara.3(1) (b) by reading in the words “(if any)” after “duty” so that the provision reads “the Scottish Ministers shall have regard to . . . the extent to which the person by whom the proposals were formulated has complied with his duty (if any) under paragraph (b) of sub-paragraph 3(1)” (emphasis added). Unless there were anything in the wider policy background to the 1989 Act which suggested an intention to restrict the persons who may apply under s.36, I think that the reading in of those words, which does no violence to the statutory language, makes sense of the provisions of Sched.9.

12. Finally, in this part of the challenge, Mr Campbell points out that the s.36 permission allows the applicant to operate as well as construct the generating station. Because only a licensed person or a person authorised by exemption can lawfully generate electricity, he suggests that the permission to operate can only be given to a licensed or exempted person. I am not persuaded that that is so. A s.36 permission to operate is a necessary but not a sufficient precondition for generating electricity in a generating station. As the Scottish Ministers submit in their written case, s.4 makes it clear that no generating

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2016 S.C.L.R. Trump International Golf Club v Scottish Ministers (UKSC) 73 station may be operated without a licence or exemption, and it is customary in statutory development consents to include conditions governing the operations of the new building. By requiring a s.36 consent for operations, the 1989 Act enables the Scottish Ministers to impose conditions relating to the use of the generating station as well as its construction.

13. I am therefore of the view that the structure and language of the 1989 Act does not support TIGC’s case, which depends upon the court’s acceptance that Parliament sought to limit who may apply for a s.36 consent by using circumlocution and implication.

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14. I am also satisfied that there is nothing in the background to the 1989 Act which requires the court to take a different view of the relevant statutory provisions. I have five reasons for that conclusion.

15. First, the aim of the 1989 Act was to liberalise the market for the generation, transmission and supply of electricity in Great Britain by privatisation. The White Paper, “Privatisation of the Scottish Electricity Industry” (1988) (Cm 327) proposed the replacement of the two Scottish public sector electricity boards by two vertically integrated private companies and envisaged that, because Scotland then had surplus generating capacity and England and Wales were projected to need substantial new capacity by 2000, the electricity industry in Scotland could compete in the British market for electricity. It and the White Paper for England and Wales, “Privatising Electricity” (1988) (Cm 322), proposed a Britain-wide regulatory system in order to promote fair competition. In England and Wales the White Paper proposed competition in electricity generation by removing the effective monopoly on generation of the Central Electricity Generating Board and by transferring control and ownership of the National Grid to the distribution companies, with whom the generating companies would enter into contracts.

The policy did not address who would construct generating stations. But it was not a necessary part of this model that the persons who sought to build the needed new generating stations were the same persons as those who later generated electricity at those stations.

16. Secondly, the 1989 Act contains two separate regulatory regimes, for the construction of electricity generation stations and overhead electric lines (ss.36 and 37) on the one hand, and for the licensing and other regulation of electricity supply, including generation and transmission (inter alia ss.4, 6 and 7) on the other. Since the devolution of power to Scotland there have been separate regulators for those activities: the former, involving a land use permission, is in Scotland the responsibility of the Scottish Ministers; the latter, involving the regulation of electricity generation, transmission, distribution and supply in the interests of consumers (viz the 1989 Act, s.3A(1) and (5)) is a reserved matter (Scotland Act 1998, s.30 and Sched.5, Pt.II, s.D1) and is the responsibility of the Secretary of State and the Gas and Electricity Markets Authority.

17. Thirdly, I am satisfied that Parliament did not create a regulatory gap by allowing persons, who are not subject to environmental duties under subpara.3(1) of Sched.9, to apply for construction consents under s.36 of the 1989 Act. There is a theme in TIGC’s written case which suggests that if an applicant for a s.36 consent is not under statutory environmental obligations in Sched.9, para.3(1), it is not subject to environmental constraints when constructing a generating station. But this is not so. The Scottish Ministers have a duty under subpara.3(2)(a) of Sched.9, when considering any

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application for consent under s.36 or 37 for a development which is a relevant proposal, to have regard to the desirability of the matters mentioned in subpara.3(1) of that Schedule. In addition, the Scottish Ministers have a wide power under s.36(5) to impose conditions in a s.36 consent and they are informed of the environmental impact of a proposed development by an environmental assessment which has been required since the commencement of the Environmental Assessment (Scotland) Regulations 1988 (SI 1988/1221) and their amendment in 1990 to take into account the 1989 Act. Now the Scottish Ministers are subject to the Electricity Works (Environmental Impact Assessment) (Scotland) Regulations 2000 (SSI 2000/320), all as Lord Doherty narrated in paras 42–44 of his impressive opinion. As with an applicant for planning permission under the Town and Country Planning legislation, it is not necessary in order to protect the environment for an applicant for a s.36 consent to be subject to environmental duties in relation to the construction of a generating station because the authority granting the consent protects the environment by imposing conditions.

18. Fourthly, there was and is no need to require an applicant under s.36 to possess in advance a generating licence or an exemption in order to secure that only competent persons construct generating stations. Section 36(5) of the 1989 Act, which provides that the Scottish Ministers may include in a consent such conditions as appear to them to be appropriate, expressly refers to “conditions as to the ownership or operation of the station”. Further, the skills required to construct a generating station, whether onshore or offshore, are not the same as those required for generating and supplying electricity, although the two skill sets may overlap.

19. Fifthly, as Mr James Mure QC explained, it has been the established practice in both of the British jurisdictions for commercial organisations to apply for and obtain s.36 consents before they seek a licence to generate electricity under s.6 of the 1989 Act or an exemption under s.5. No evidence was presented that this practice has resulted in unsuitable persons applying for and obtaining s.36 consents or in any failure to protect the environment.

20. A question remains as to why Parliament, when creating the new regulatory regime in the 1989 Act, should have imposed duties in Sched.9 on licence holders and exempt persons in relation to the formulation of relevant proposals but not on other applicants for a s.36 consent for relevant proposals. The answer seems to be in the prior legislative history, in which earlier statutes imposed similar duties on publicly owned electricity boards which generated electricity. The 1989 Act preserved those duties by imposing them on persons authorised to generate electricity. Lord Malcolm in the First Division discussed this in paras 52–57 of his opinion, which I need not repeat in this judgment.

21. Accordingly, neither the language of the 1989 Act nor its policy background supports the interpretation which TIGC advances. I therefore turn to the challenge to the validity of condition 14 of the s.36 consent.

The condition 14 challenge

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22. Condition 14 of the s.36 consent, which the Scottish Ministers included after consulting Scottish Natural Heritage (SNH), states: “Prior to the commencement of the development, a detailed design statement must be submitted by the company to the Scottish Ministers for their written approval, after consultation by the Scottish Ministers with SNH, Marine and Coastguard Agency, Northern Lighthouse Board, National Air Traffic Services and any such other advisers as may be required

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2016 S.C.L.R. Trump International Golf Club v Scottish Ministers (UKSC) 75 at the discretion of the Scottish Ministers. The design statement must provide guiding principles for the deployment of the wind turbines. This plan must detail: (a) Layout location for each phase and each turbine; and (b) Turbine height, finishes, blade diameter and rotation speed across each phase, rows and individual turbine locations; and (c) Lighting requirements (navigation and aviation) for each turbine/row or, as the case may be, phase including any anemometer mast; and (d) Further detailed assessment of visual impacts to inform the detailed layout and design of each location and phase of the deployment centre from selected viewpoints to be agreed with the Scottish Ministers and any such other advisers as may be required at their discretion.

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“Reason: to set out design principles to mitigate, as far as possible, the visual impact of the turbines.”

23. Mr Campbell submits that the s.36 consent is invalid because condition 14 is both unenforceable and also so uncertain that it is irrational. He advances three arguments in support of that contention. First, he submits that the condition is invalid because there is no mechanism by which the Scottish Ministers can force the developer to construct the windfarm in accordance with the design statement. He argues that, in contrast with conditions 18, 24 and 25, there is no express statement that the developer must construct and operate the development in accordance with its terms. Secondly, he submits that the condition is void for uncertainty because there is no indication of what compliance with it entails. Thirdly, even if (which he does not accept) the design statement could be enforced through the construction method statement in condition 13, which I set out in para.29 below, the power of the Scottish Ministers to agree a departure from the construction method statement means that the scope of the development is uncertain.

24. The short answer to this challenge is that if, contrary to my view, condition 14 were unenforceable, the s.36 consent would not be invalidated.

Annex 1 of the consent confines the development to 11 turbines each with a maximum blade tip height of 198.5 metres and Figure 1 attached to the consent shows the approved location of the 11 turbines. TIGC does not dispute that (subject to an argument about the final words of the condition, which I discuss below) condition 7 requires that the development be constructed and operated in accordance with, among others, the environmental statement and the supplementary environmental information statement. The latter document contains design principles on the location and height of the turbines, on which the Scottish Ministers can insist by invoking condition 7.

25. Chapter 19 of the environmental statement contained a seascape, landscape and visual impact assessment which had been prepared after consultation with SNH, Aberdeen City Council and Aberdeenshire Council.

It assumed that the wind turbines would have a tip height of up to 195 metres and a rotor radius of up to 75 metres. In order to take account of developing windfarm technology, in the supplementary environmental information statement AOWFL re-assessed the visual impact of the development on the assumption that the maximum tip height was 198.5 metres and the maximum rotor radius was 86 metres. AOWFL also took account of SNH’s consultation response, in which it requested a condition requiring a design statement.

AOWFL set out objectives or design principles which it formulated after having regard to, and adapting to the offshore environment, SNH’s publication,

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“Siting and Designing Windfarms in the Landscape” (2009). AOWFL listed their objectives such as (a) that the closest shoreward row of turbines should be relatively consistent in tip height to maintain design integrity in views from the immediate coastline and should be populated with the smallest tip heights and rotor diameter, and (b) that the largest turbines should be located further out to sea at specified locations to achieve a gradation to the lowest turbines located closest to the coastline. It used those objectives to formulate three zoning scenarios and appraised their visual impact from various locations. The Scottish Ministers accepted the visual impact of those scenarios.

26.Thus, even if condition 14 were invalid, important elements of the benefits which it promoted are contained within the supplementary environmental information statement. The Scottish Ministers can insist on compliance with that document and those principles in the construction of the development. The scope of the development is defined by Annex 1 of the consent and the supplementary environmental information statement sets out the principles governing the size and location of the turbines. Condition 14 therefore cannot be seen as a fundamental condition which determines the scope and nature of a development and which, if invalid, would in turn invalidate the consent.

27. For completeness, I observe that even if condition 14 could not be enforced so as to require AOWFL to construct the windfarm in accordance with the design statement, the condition would not be void for uncertainty. It would have effect to the extent that the developer would have to produce a design statement and obtain its approval by the Scottish Ministers before it could start the development. In Fawcett Properties Ltd v Buckingham County Council, a case concerning a condition in a planning permission, Lord Denning stated (p.678): “[A] planning condition is only void for uncertainty if it can be given no meaning or no sensible or ascertainable meaning, and not merely because it is ambiguous or leads to absurd results. It is the daily task of the courts to resolve ambiguities of language and to choose between them; and to construe words so as to avoid absurdities or to put up with them. And this applies to conditions in planning permissions as well as to other documents.”

It cannot be said that condition 14 has no ascertainable meaning. Indeed, TIGC accepts that it provides that the Scottish Ministers must approve the design statement before the development can commence.

28. Further, I do not accept the submission that the condition is invalid because of any uncertainty as to what amounts to compliance with its terms.

What will amount to compliance with the design statement will depend on (a) its terms and (b) the way in which the Scottish Ministers incorporate its requirements into the construction method statement, which is the subject of condition 13, to which I now turn.

29. When one construes the conditions as a whole, it is clear that the consent contains a mechanism that can enable the Scottish Ministers to enforce compliance with the condition 14 design statement in the construction of the development. First, condition 13 provides (so far as relevant): “Prior to the commencement of development a Construction Method Statement (‘CMS’) must be submitted by the company to the Scottish Ministers and approved, in writing by the Scottish Ministers, following consultation (with specified advisers including SNH). Unless otherwise agreed in writing by the Scottish Ministers, construction of the development must proceed in accordance with the approved CMS. The CMS must include, but not be limited to, information on the following matters:

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2016 S.C.L.R. Trump International Golf Club v Scottish Ministers (UKSC) 77 (a) Commencement dates; (b) Working methods; . . . and (g) Design statement.

“The CMS must be cross referenced with the Project Environmental Management Plan, the Vessel Management Plan and the Navigational Safety Plan.

“Reason: To ensure the appropriate construction management of the development, taking into account mitigation measures to protect the environment and other users of the marine area.”

It is thus open to the Scottish Ministers to require AOWFL to include in the CMS a statement as to how it would implement the design statement. The condition refers to information on the design statement. That can include information on how the method of construction will comply with it, which, once the CMS is approved, becomes obligatory. Further, the listed matters are not exclusive as the condition says that the CMS “must include, but not be limited to” the listed topics. The Scottish Ministers, after consulting SNH amongst others, can require other relevant matters which mitigate environmental impact to be included within the CMS before they approve it.

Thus condition 14 can be enforced by the use of the powers which the Scottish Ministers possess in condition 13.

30. Secondly, further support for the view that the conditions envisaged that the developer would be required to comply with the design statement can be found in condition 24, which requires AOWFL to submit for approval a vessel management plan to minimise disturbance to marine mammals and birds. As mentioned above, the condition requires that the development must be constructed and operated in accordance with the vessel management plan.

It also provides that the vessel management plan must be cross-referenced with, amongst others, the CMS and the design statement. Thus, when one reads condition 14 in the context of conditions 13 and 24 it is clear that the conditions envisaged that the Scottish Ministers could use both the CMS and the design statement to regulate the detailed design of the windfarm in the interests of environmental protection and require those constructing the generating station to comply with those statements.

31. It is not therefore necessary to consider whether one can imply into condition 14 an obligation that the construction of the development must be in accordance with the design statement. But as it is an important point which Mr Campbell raises in his submissions, and as Lord Carnwath has discussed the matter more fully in his judgment, I will deal with it briefly.

32. Mr Campbell submits that the court should follow the approach which Sullivan J adopted to planning conditions in Sevenoaks District Council v First Secretary of State and hold that there is no room for implying into condition 14 a further obligation that the developer must construct the development in accordance with the design statement. In agreement with Lord Carnwath, I am not persuaded that there is a complete bar on implying terms into the conditions in planning permissions, and I do not see the case law on planning conditions under planning legislation as directly applicable to conditions under the 1989 Act because of the different wording of the 1989 Act. 33. Whether words are to be implied into a document depends on the interpretation of the words which the author or authors have used. The first question therefore is how to interpret the express words, in this case the s.36 consent. There is a modern tendency in the law to break down divisions in the

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rules on the interpretation of different kinds of document, both private and public, and to look for more general rules on how to ascertain the meaning of words. In particular, there has been a harmonisation of the interpretation of contracts, unilateral notices, patents and also testamentary documents. This can be seen, for example, in Rainy Sky SA v Kookmin Bank, per Lord Clarke at paras 14–23 (contracts), Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd, per Lord Steyn at pp.770C–771D and Lord Hoffmann at pp.779H– 780F (unilateral notices), Kirin-Amgen Inc v Hoechst Marion Roussel Ltd, per Lord Hoffmann at paras 27–35 (patents), and Marley v Rawlings, per Lord Neuberger at paras 18–23 (testamentary documents). Differences in the nature of documents will influence the extent to which the court may look at the factual background to assist interpretation. Thus third parties may have an interest in a public document, such as a planning permission or a consent under s.36 of the 1989 Act, in contrast with many contracts. As a result, the shared knowledge of the applicant for permission and the drafter of the condition does not have the relevance to the process of interpretation that the shared knowledge of parties to a contract, in which there may be no thirdparty interest, has. There is only limited scope for the use of extrinsic material in the interpretation of a public document, such as a planning permission or a s.36 consent: R v Ashford Borough Council, ex parte Shepway District Council, per Keene J at pp.19C–20B; Carter Commercial Developments Ltd v Secretary of State for Transport, Local Government and the Regions, per Buxton LJ at para.13, per Arden LJ at para.27. It is also relevant to the process of interpretation that a failure to comply with a condition in a public law consent may give rise to criminal liability. In s.36(6) of the 1989 Act the construction of a generating station otherwise than in accordance with the consent is a criminal offence.

This calls for clarity and precision in the drafting of conditions.

34. When the court is concerned with the interpretation of words in a condition in a public document such as a s.36 consent, it asks itself what a reasonable reader would understand the words to mean when reading the condition in the context of the other conditions and of the consent as a whole.

This is an objective exercise in which the court will have regard to the natural and ordinary meaning of the relevant words, the overall purpose of the consent, any other conditions which cast light on the purpose of the relevant words, and common sense. Whether the court may also look at other documents that are connected with the application for the consent or are referred to in the consent will depend on the circumstances of the case, in particular the wording of the document that it is interpreting. Other documents may be relevant if they are incorporated into the consent by reference (as in condition 7 set out in para.38 below) or there is an ambiguity in the consent, which can be resolved, for example, by considering the application for consent.

35. Interpretation is not the same as the implication of terms. Interpretation of the words of a document is the precursor of implication. It forms the context in which the law may have to imply terms into a document, where the court concludes from its interpretation of the words used in the document that it must have been intended that the document would have a certain effect, although the words to give it that effect are absent. See the decision of the Privy Council in Attorney General of Belize v Belize Telecom Ltd, per Lord Hoffmann at paras 16–24 as explained by this court in Marks & Spencer plc v BNP Paribas Securities Trust Company (Jersey) Ltd, per Lord Neuberger at paras 22–30. While the court will, understandably, exercise great restraint in implying terms into public documents which have criminal sanctions, I see no principled reason for excluding implication altogether.

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2016 S.C.L.R. Trump International Golf Club v Scottish Ministers (UKSC) 79 36. In my view assertions, such as are found in Trustees of the Walton-onThames Charities v Walton and Weybridge Urban District Council, Salmon LJ at p.418 and Widgery LJ at p.420, and in the Sevenoaks District Council case, Sullivan J at para.45, that there can never be an implied condition in a planning permission are too absolute. To say that is not to undervalue the importance of the advice of the Secretary of State and now the Scottish Ministers in Planning Circular 4/98 that planning conditions should be precise and clear.

In para.29 of Annex A to the circular it is stated: “The framing of conditions requires great care, not least to ensure that a condition is enforceable. A condition, for example, requiring only that ‘a landscaping scheme shall be submitted for the approval of the planning authority’ is incomplete since, if the applicant were to submit the scheme and even obtain approval for it, but neglect to carry it out, it is unlikely that the planning authority could actually require the scheme to be implemented. In such a case, a requirement should be imposed that landscaping shall be carried out in accordance with a scheme to be approved in writing by the planning authority; and the wording of the condition must clearly require this. . . .”

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Subject to the observation that, in view of the decision in this case, the second sentence of the advice may overstate the difficulty which the planning authority might face in requiring the implementation of an approved scheme, this and the almost identical advice in the earlier Circular 11/95, para.30 in respect of England and Wales remain good advice as a planning authority which follows the advice can avoid unnecessary and possibly difficult disputes about whether terms can be implied into a condition.

37. If condition 13 had not provided that the CMS was to contain information about the design statement but, like condition 24, had required only cross-references to it, I, on applying the approach to interpretation set out above, would have readily drawn the inference that the conditions of the consent read as a whole required the developer to conform to the design statement in the construction of the windfarm. The combination of the obligation in condition 14 to have the design statement approved by the Scottish Ministers and what would have been the obligation to cross-refer to the design statement in statements or plans under conditions 13 and 24, with which the Scottish Ministers could enforce compliance, would point inexorably towards that conclusion. But, as I have said, it is not necessary to imply words into the consent as condition 13 gives the Scottish Ministers the vehicle to make the requirement explicit.

38. Finally, Mr Campbell argues that the power conferred on the Scottish Ministers to alter the terms of the CMS in condition 13 (ie, “Unless otherwise agreed in writing by the Scottish Ministers . . . .”) invalidated the condition as it rendered the design and layout of the development uncertain. He argues also that condition 7 suffers from a similar defect. Condition 7 provides: “The development must be constructed and operated in accordance with the terms of the application and the accompanying environmental statement and the supplementary environmental information statement, except insofar as amended by the terms of the section 36 consent and any direction made by the Scottish Ministers (emphasis added)

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“Reason: To ensure that the development is carried out in accordance with the application documentation.”

In support of that contention he refers to two cases, R (Midcounties Co-operative Ltd) vWyre Forest District Council and Hubert v Carmarthenshire County Council.

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39. I consider that his contention is unsound. The flexibility conferred on the Scottish Ministers in each of those conditions to modify the way in which the windfarm is constructed and operated does not enable them to alter the nature of the approved development. As I have said, the maximum size and the maximum number of the turbines and their locations are set out in Annex 1 and Figure 1 of the consent, which define the development. The two cases to which Mr Campbell refers can be distinguished on that basis. The parties agreed that the reference in condition 7 to a “direction” made by the Scottish Ministers was a reference to a lawful direction made under a statutory power, for example under s.96 of the 1989 Act. Such a direction likewise may affect the manner in which the windfarm is constructed or operated, but it cannot alter the definition of the development itself.

Conclusion

40. For these reasons, I would dismiss the appeal.

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LORD MANCE 41. I agree with the judgment prepared by Lord Hodge and agree therefore that the appeal should be dismissed. But I add some words with regard to the process of implication on which Lord Hodge touches in para.35 of his judgment by reference to the Privy Council’s advice in Attorney General of Belize v Belize Telecom Ltd, per Lord Hoffmann at paras 16–24 as explained by this court in Marks & Spencer plc v BNP Paribas Securities Trust Company (Jersey) Ltd, per Lord Neuberger at paras 22–30.

42. As Lord Neuberger indicates in para.23 in Marks & Spencer, whether an implication is necessary to give business efficacy must be judged objectively, in the light of the provisions of the contract as a whole and the surrounding circumstances at the time when the contract is made. But I would not encourage advocates or courts to adopt too rigid or sequential an approach to the processes of consideration of the express terms and of consideration of the possibility of an implication. Without derogating from the requirement to construe any contract as a whole, particular provisions of a contract may I think give rise to a necessary implication, which, once recognised, will itself throw light on the scope and meaning of other express provisions of the contract.

43. This applies whether one is concerned, as in this case, with a public document in the interpretation of which there is, as Lord Hodge notes in para.33, limited scope for the use of extrinsic material or with, for example, a commercial contract, where the overall aim is to give effect to the parties’ assumed intentions, objectively assessed by reference to the contractual language they used understood against the background of their wider relationship and the circumstances of which both must be taken to have been aware when contracting.

44. In the light of the above at least, it appears to me helpful to recognise that, in a broad sense as Lord Neuberger and Lord Clarke recognise in Marks & Spencer at paras 26 and 76, the processes of consideration of express terms and of the possibility that an implication exists are all part of an overall, and potentially iterative, process of objective construction of the contract as a whole.

LORD CARNWATH 45. I agree that the appeal should be dismissed for the reasons given by Lord Hodge. I add a comment on the planning cases which have been relied on in

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2016 S.C.L.R. Trump International Golf Club v Scottish Ministers (UKSC) 81 support of the appellants’ strict interpretation of condition 14. These cases, in particular the first, Sevenoaks District Council v First Secretary of State, are said

by Mr Campbell QC for the appellants to support the submission that it is not possible by implication to add to the condition a requirement that the development be completed in accordance with the approved design statement.

For reasons I will explain at the end of this judgment, I do not regard the planning cases as of much assistance in relation to the issue before us, which is in a different statutory context. However, since they have been said to disclose a degree of “tension” between competing principles of interpretation, some guidance from this court may be of value.

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46. The three cases are: (i) Sevenoaks District Council v First Secretary of State; (ii) Hulme v Secretary of State for Communities and Local Government; [and] (iii) Telford and Wrekin Council v Secretary of State for Communities and Local Government.

47. All three were concerned with what might be termed “incomplete” conditions, in that they required approval of certain matters in relation to the development in question, without fully stating the consequences. A similar defect is said to affect condition 14 in the present case. It is convenient to start with a brief summary of each case, to explain how the “incompleteness” arose and how it was resolved, before discussing the principles of law which they are said to establish or illustrate.

48. In Sevenoaks the claimant had been granted outline planning permission for the construction of a 27-hole golf course. It was subject to a condition 12: “Prior to the commencement of the development hereby permitted details of all proposed engineering works associated with the laying out of golf courses including the creation of greens, bunkers, tees, ponds or lakes shall be submitted to and approved in writing by the district planning authority.”

There was nothing in terms to require completion of those engineering works in accordance with the approved details. By contrast condition 8, dealing with details of means of access, expressly required completion in accordance with the approved details. Parts of the engineering works as constructed did not comply with the approved details under condition 12. The authority served an enforcement notice alleging breach of the condition. Sullivan J upheld the planning inspector’s decision to allow an appeal against the notice, on the basis that the condition was unambiguously directed to submission of the details only, and not to their implementation. This authority is relied on by the appellants as providing a direct parallel with the present case, which has not been displaced by the later authorities.

49. In Hulme permission had been granted for a windfarm, subject to a complex group of conditions, designed to mitigate noise, including (as it was described) “blade swish”. Condition 20 required the operator, in the event of a complaint from a local resident, to employ a consultant to assess whether the noise emissions at that dwelling exceeded the expected levels, by reference to levels specified in the condition. The condition was obscurely drafted, and failed to indicate clearly what was to happen next. However, having regard to its obvious purpose and to the scheme of the conditions as a whole, Elias LJ was able to interpret it as imposing an obligation, running for the duration of

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the permission, to comply with the specified levels, subject to enforcement by the planning authority in the normal way (para.38). He distinguished but did not overrule the decision in Sevenoaks.

50. In Telford permission had been granted for use of a building as a garden centre subject to a condition in these terms, “prior to the garden centre hereby approved opening, details of the proposed types of products to be sold should be submitted to and agreed in writing by the local planning authority”.

51. It was accepted that use as a garden centre was a retail use within Use Class A1, and that apart from the condition it could have been used without permission for any other use within that class. On an application for a certificate of lawful use to that effect, it was held by the planning inspector that the condition was insufficiently clear to exclude the rights otherwise available under the Use Classes Order. Beatson LJ, sitting in the administrative court, refused leave to appeal against that decision. He detected what he described, at para.32, as “a degree of tension” between the approaches in the two previous cases: “The Sevenoaks case involved a condition that was considered clear and without ambiguity. Sullivan J emphasised the need for clarity and certainty on the face of the condition, in particular because a planning permission is a public document which is likely to affect third party rights and the wider public and on which they are entitled to rely, and because breach of a condition may ultimately have criminal consequences. Hulme’s case appears to take a less strict approach in the context of words in a condition Elias LJ (at para.31) described as ‘particularly opaque’. . . .”

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52. In both Hulme and Telford the court attempted to enunciate lists of principles said to be derived from the relevant authorities. In the first, Elias LJ set out four principles, by reference to three decided cases, one at first instance, one in the Court of Appeal and one in the House of Lords. In Telford, Beatson LJ managed with the assistance of the very experienced counsel before him to extract no fewer than nine principles, derived from a dozen or so authorities at different levels of the judicial hierarchy.

53. With respect to them both I see dangers in an approach which may lead to the impression that there is a special set of rules applying to planning conditions, as compared to other legal documents, or that the process is one of great complexity. Beatson LJ was faced with an apparent conflict between the approaches in Sevenoaks and Hulme which needed to be resolved, and I have no difficulty with his conclusion on the facts of the case before him.

However, most of the judgments cited in support of his nine principles, many at first instance, turned on their own facts, and cannot be relied on as establishing any more general rules.

54. It may be useful to comment in more detail on Elias LJ’s summary of the “relevant legal principles”, and their relationship to the decision in Sevenoaks which is most directly relevant to the present case. They were said by him to be not in dispute (para.13), from which I infer that he may have been reproducing a summary provided by counsel without further discussion or examination of the authorities referred to. The principles were stated by him, at para.13, as follows: “(a) The conditions must be construed in the context of the decision letter as a whole. (b) The conditions should be interpreted benevolently and not narrowly or strictly: see Carter Commercial Development Ltd v Secretary of State

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2016 S.C.L.R. Trump International Golf Club v Scottish Ministers (UKSC) 83 for the Environment [2002] EWHC 1200 (Admin), para.49, per Sullivan J, as he was. (c) A condition will be void for uncertainty only ‘if it can be given no meaning or no sensible or ascertainable meaning, and not merely because it is ambiguous or leads to absurd results’ per Lord Denning in Fawcett Properties Ltd v Buckingham County Council, p.678. This seems to me to be an application of the benevolent construction principle. (d) There is no room for an implied condition (although for reasons I discuss more fully below, the scope of this principle needs careful analysis). This principle was enunciated by Widgery LJ, as he then was, in Trustees of Walton on Thames Charities v Walton and Weighbridge [sic] District Council, p.420 in the following terms: “ ‘I have never heard of an implied condition in a planning permission, and I believe that no such creature exists. Planning permission enures for the benefit of the land. It is not simply a matter of contract between the parties. There is no place, in my judgment, within the law relating to planning permission for an implied condition. Conditions should be express; they should be clear; they should be in the document containing the permission.’ ” 55. Principle (a) is of course uncontroversial but not peculiar to planning permissions. Principle (b) requires a little more comment, as does the citation.

“Benevolence” is not a very helpful concept, since benevolence to one party may have the opposite effect on his opponent. But it is equally uncontroversial, if it means no more than that, as with any other legal document, incompetent drafting should not prevent the court from giving the condition a sensible meaning if at all possible.

56. On the other hand, I suspect Sullivan J himself might have been surprised to find that principle supported by reference to his own judgment at first instance from 2002. The case went to the Court of Appeal ([2002] EWCA Civ 1994), which upheld his decision but did not refer to this aspect of the judgment (see further below). In fact that same principle is supported by one of the earliest Court of Appeal decisions under the Town and Country Planning Act 1947: Crisp from the Fens Ltd v Rutland County Council, p.59.

57. In that case a permission granted for a change of use of a building to use for making potato crisps was subject to a condition confining its use to that of “the manufacture of potato crisps or any use within class III of (the Use Classes Order)”. The stated reason was “to ensure that the building shall not be used for general industrial purposes” which would be detrimental to the amenity of the locality. The relevant Use Classes Order distinguished between use as a light industrial building (class III) and as a general industrial building (class IV); the former being defined by reference to whether the processes could be carried on in any residential area without detriment to its amenity by reason of noise, smell, fumes or smoke. It was held that, notwithstanding the unqualified reference in the condition to use for manufacture of potato crisps, the word “other” should be read into the second part of the condition (“or any other use . . .”), with the effect that class III constraints should be read as applying to both parts of the condition. The court relied in particular on the clear intention, expressed in the reason, to protect the local amenities by excluding general industrial use: see p.54, per Bucknill LJ. As he put it, the court should “have regard to the common sense of the transaction, and to the real intention and meaning of the parties rather than criticise minutely the precise words used” (p.55). Denning LJ added: “It is a case where strict adherence to the letter would involve an error of substance” (p.59).

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58. The same approach was reflected in the words, again of Lord Denning, from Fawcett Properties Ltd v Buckingham County Council, p.678, cited in support of Elias LJ’s third principle, again in itself uncontroversial. However, it is also clear from the context that Lord Denning was not enunciating some principle special to planning conditions, as compared to other forms of legal document—rather the contrary. In the previous paragraph he had been considering suggested comparisons with documents such as contracts or wills.

Following the passage quoted by Elias LJ, he commented: “It is the daily task of the courts to resolve ambiguities of language and to choose between them; and to construe words so as to avoid absurdities or to put up with them. And this applies to conditions in planning permissions as well as to other documents” (p.678 emphasis added).

59. I have more difficulty with Elias LJ’s fourth principle, not least because it reflects a strictness of approach apparently at odds with his two previous principles. The case cited in support (Walton) arose in a very esoteric and now obsolete legal context: that of so-called “third schedule development” (under Sched.3 to the Town and Country Planning Act 1962, as applied by s.15(3) of the Land Compensation Act 1961). Elias LJ explained the issue later in his judgment in Hulme (paras 36–37): “That case concerned the assessment of compensation for the compulsory purchase of land under the Land Compensation Act 1961. The value of the compensation depended upon the value of the ‘deemed’ planning permission for the rebuilding of 50 ‘prefabs’ on the land. The compensating authority contended that the value with the assumed planning permission would be nil since there was to be implied a condition that any prefabs would have to be removed within ten years. This was said to arise by virtue of a power under section 2 of the Housing (Temporary Accommodation) Act 1944 which enabled the Secretary of State to require the removal of prefabs after ten years unless housing conditions required that they should remain. The Court of Appeal unanimously held that there could be no implied condition to that effect, and Widgery LJ made the observations to which I have referred above, and on which the appellant relies.”

Elias LJ contrasted the proposed implied term in that case, which “depended on reading into the planning permission an obligation which was said to arise from extrinsic circumstances”, with that in the instant case which “arises as a necessary implication from the language of the express conditions when read in the context of the decision letter” (para.37).

60. I agree with that analysis, but I would go further. Widgery LJ had been a leading proponent of planning law in the early decades of the new system.

However, with great respect to him, I regret the elevation of these obiter comments, made in a very unusual legal and factual context, to statements of general principle. He was not giving the leading judgment, and his comments went further than was necessary to decide the case. His general approach is apparent from the passage immediately preceding the words quoted: “The courts have said on many occasions that it is only fair to a landowner that conditions attaching to planning permissions should be clear and explicit. Their effect is to work a forfeiture, and they have to be judged by the court’s strict rules, like any other forfeiture” (p.420).

That reflects a view, not uncommon at the time, of planning control as an interference with property rights requiring to be kept within narrow limits. It is not consistent with the modern approach, nor indeed with that

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2016 S.C.L.R. Trump International Golf Club v Scottish Ministers (UKSC) 85 of earlier cases such as Crisp from the Fens and Fawcett. There is no reason in my view to exclude implication as a technique of interpretation, where justified in accordance with the familiar, albeit restrictive, principles applied to other legal documents. In this respect planning permissions are not in a special category.

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Sevenoaks

61. There are indications that such an exclusionary rule was the basis of Sullivan J’s reasoning in Sevenoaks. To that extent, he was in my respectful view mistaken. The inspector had recorded the appellant’s case as resting on the proposition that they did what the condition required of them and could not by implication be required to do more: “Words cannot be introduced later to give a condition efficacy. That is a contractual not a public law concept” (judgment, para.10). The substance of that submission seems to have been accepted by Sullivan J. 62. Having cited the statement by Widgery LJ in Walton he noted the authority’s attempt to distinguish the case, on the basis that it involved the implication of an additional condition, rather than the implication of an additional obligation to a condition already in the permission. That he said, was “a distinction without a difference”, adding: “If conditions are to be included in a public document such as a planning permission, they should be clearly and expressly imposed, so that they are plain for all to read. There is no room for implication” (para.45).

63. For the reasons I have given, I consider that was too widely stated, and he was wrong to find support in Walton. His approach to the issue of implication was in my view also inconsistent with the reasoning of the Court of Appeal in Crisp from the Fens, which he had cited earlier in the judgment (para.19). That decision had been relied on by counsel to support the proposition that it was possible to imply words into a condition “if it was necessary to do so in order to enable the condition to achieve its purpose” (para.23). Sullivan J distinguished it on the basis that the condition in that case had been found to be ambiguous, unlike his view of the condition before him. He also noted the Court of Appeal’s references to the “intention of the parties”, made, he said, at a time when the 1947 Act was a “novel Act”. He added: “We no longer consider it appropriate to examine the intentions of the applicant and the local planning authority. . . . The question is: what was permitted by the local planning authority? The answer to that question is to be found by construing in a common sense way the planning permission together with such other documentary evidence as may be admissible: see per Arden LJ in Carter paras 27 and 28” (para.38).

64. I have no difficulty with the approach stated in the second part of that passage, which is entirely consistent with that of the Court of Appeal in 1950. It is true that at the end of his judgment, Bucknill LJ noted that it was a “novel Act” (p.55), but, as I read it, rather by way of explanation of the authority’s failure, than as a necessary part of his reasoning. Denning LJ himself emphasised the importance in general of such a condition being expressed “in plain language so that any layman can understand it . . .”, but here the terms of “the condition and, particularly, the reasons for it” left no doubt as to its meaning (p.59). The intention of the authority was apparent, not from extrinsic evidence, but from the terms of the document itself. It was that which enabled words to be added by implication to the terms of the condition.

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65. Before leaving this subject I should add one comment on the judgment of Arden LJ in Carter Commercial (cited by Sullivan J in the passage quoted above). At the outset of her concurring judgment she said: “27. I start from the position that this planning permission is not to be construed like a commercial document, but is to be given the meaning that a reasonable reader would give to it, having available to him only the permission, the variation, the application form and the Lewin Fryer report referred to in condition 4 in the planning permission itself. . . .

28. The reasonable reader for this purpose is to be contrasted with, for instance, the testator into whose armchair the court is enjoined to place itself in order to construe a will, or the position of parties to a commercial contract from whose standpoint the court will construe a commercial contract having regard to all the background information reasonably available to them. This is a public document, to which very different principles apply.”

She cited the judgment of Keene J (as he then was) in R v Ashford Borough Council, ex parte Shepway District Council, as indicating the “very strict limitations on the extrinsic material that can be used in construing an application, including a permission . . .”.

66. I do not question the decision of the court in that case, or the reasoning on which it was based. As will have become apparent, however, and in agreement also with Lord Hodge, I do not think it is right to regard the process of interpreting a planning permission as differing materially from that appropriate to other legal documents. As has been seen, that was not how it was regarded by Lord Denning in Fawcett. Any such document of course must be interpreted in its particular legal and factual context. One aspect of that context is that a planning permission is a public document which may be relied on by parties unrelated to those originally involved. (Similar considerations may apply to other forms of legal document, for example leases which may need to be interpreted many years, or decades, after the original parties have disappeared or ceased to have any interest.) It must also be borne in mind that planning conditions may be used to support criminal proceedings.

Those are good reasons for a relatively cautious approach, for example in the well-established rules limiting the categories of documents which may be used in interpreting a planning permission (helpfully summarised in the judgment of Keene J in the Shepway case at pp.19–20). But such considerations arise from the legal framework within which planning permissions are granted.

They do not require the adoption of a completely different approach to their interpretation.

The statutory contexts compared

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67. As I have indicated I do not in any event regard the English planning cases as providing much assistance to the resolution of the issue before us. There are important differences between the two statutory schemes in respect of noncompliance and its consequences.

68. The scheme of the Town and Country Planning Act 1990 (as of the Town and Country Planning (Scotland) Act 1997, which in this respect follows the English statute), as respects enforcement, is relatively complex.

Section 57 provides that “planning permission is required for the carrying out of any development of land”. It says nothing of the consequences of noncompliance, nor is it made an offence. Enforcement is covered by a different group of sections (Pt.VII). “[B]reach of planning control” is defined as either: (a) carrying out development without the required planning permission; or

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2016 S.C.L.R. Trump International Golf Club v Scottish Ministers (UKSC) 87 (b) failing to comply with any condition or limitation subject to which planning permission has been granted (s.171A(1)). Enforcement may be by means of an enforcement notice, which is required to state “the paragraph of section 171A(1) within which, in the opinion of the authority, the breach falls” (s.173(1)(b) (a requirement relied on by the inspector, and noted by Sullivan J, in the Sevenoaks case: para.18)). An alternative, in the case of contravention of a condition, is a “breach of condition notice” (s.187A). An offence is committed by non-compliance with a confirmed enforcement notice (s.179), or a breach of condition notice (s.187A(9)). There is also specific provision for the planning authority to apply to the court for an injunction (or, in the [1997] Scottish Act, s.146, interdict) to restrain an apprehended breach of planning control as so defined (s.187B).

69. The scheme of the Electricity Act 1989 is much simpler. Section 36(1) provides that a generating station “shall not be constructed, extended or operated except in accordance with a consent granted by the Secretary of State.”

Such a consent may include such conditions “as appear to the Secretary of State to be appropriate” (s.36(5)). Contravention of the provisions of the section is an offence, for which proceedings can only be commenced by the Secretary of State (s.36(6), (7)). I do not read this as excluding the possibility of a civil remedy if necessary to restrain an apprehended breach, at least at the suit of the Secretary of State. It seems clear that that construction will not be “in accordance with” the consent if it does not comply with the conditions under which it was granted. By contrast with the planning scheme, no distinction is drawn for this purpose between the two forms of non-compliance.

70. The same approach would extend in my view to any matters requiring subsequent approval under the conditions, insofar as they are properly regarded as part of the consent. Thus, even disregarding condition 13 (on which I agree with Lord Hodge), I see no reason why the requirement to construct “in accordance with” the consent should not include compliance with the terms of the condition 14 “design statement”. By condition 14 the design statement must be submitted to the Scottish Ministers “for their written approval”, and it must “provide guiding principles for the deployment of the wind turbines”, including such matters as layout location and detailed assessment of visual impacts. Although it does not in terms provide that development must be constructed in accordance with the design statement, such a requirement must as a matter of common sense be implicit, since otherwise the statement would have no practical purpose.

71. For these reasons, in addition to those given by Lord Hodge, I would dismiss the appeal.

For the appellants: John Campbell QC, James Finlay QC, instructed by Balfour & Manson, Solicitors, Edinburgh.

For the respondents: James Muir QC, Kay Springham, instructed by Scottish Government Legal Directorate.

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