United Kingdom House of Lords Decisions

The appeal was heard in the House of Lords before Lord Browne-Wilkinson, Lord Keith of Kinkel, Lord Jauncey of Tullichettle, Lord Steyn and Lord Clyde.

At delivering judgment, on 27 February 1997—

LORD BROWNE-WILKINSON —My Lords, I have read in draft the speeches prepared by my noble and learned friends Lord Jauncey of Tullichettle and Lord Clyde. For the reasons which they give, I would allow the appeal.

LORD KEITH OF KINKEL —My Lords, for the reasons set out in the speeches prepared by my noble and learned friends Lord Jauncey of Tullichettle and Lord Clyde, which I have read in draft and with which I agree, I would allow this appeal. The first plea-in-law for the appellants should be sustained and the action dismissed.

LORD JAUNCEY OF TULLICHETTLE —My Lords, this appeal raises the question of what is meant by the word property in a floating charge and in sec 53(7) of the Insolvency Act 1986 (the Act of 1986), which provides for the effect of the appointment of a receiver by the holder of such a charge in the following terms. [His Lordship quoted sec 53(7) as set out above and continued:]

The facts may be summarised as follows.

1. (1) On 2 July 1984 Albyn Construction Ltd (‘Albyn’) granted a floating charge over the whole of its property which might from time to time be ‘comprised in our property and undertaking’. The floating charge was duly registered with the Registrar of Companies.

2. (2) Albyn entered into missives with a brother and sister, the Thomsons, for sale of a flat in Aberdeen at a price of £40,000 which was duly paid by the Thomsons, having been borrowed from the appellants. Entry was given on 14 April 1989.

3. (3) On 9 August 1990 Albyn delivered an executed disposition of the flat to the Thomsons' solicitors.

4. (4) On 10 August 1990 the respondents were appointed as receivers by the holders of the floating charge.

5. (5) On 21 August 1990 the disposition together with a standard security granted by the Thomsons to the appellants were recorded in the general Register of Sasines.

6. (6) Thereafter a dispute arose between the respondents on the one hand and the Thomsons and the appellants on the other as to whether the floating charge attached to the flat on 10 August 1990.

In 1992 the respondents raised an action against the Thomsons and the appellants for a declarator, inter alia, that the floating charge attached to the flat on their appointment as receivers, and that they were entitled to exercise their power to sell it. After a hearing in procedure roll the Lord Ordinary granted decree de plano and the First Division adhered. In the course of a carefully reasoned judgment, during the course of which he analysed many authorities, the Lord President concluded that, since in the law of Scotland there could be no fragmentation of the concept of ownership and since property in heritage passed only on recording of the relevant deed in the appropriate register, it followed that the property in the flat remained in Albyn at the time when the floating charge attached. Lord Sutherland and Lord Coulsfield expressed similar views.

Before turning to consider the arguments in more detail, I propose to make a few general comments upon the underlying purpose of registration of deeds transferring heritable rights and upon the impact of the introduction of floating charges into the law of Scotland. The Act 1617, cap 16, which re-enacted prior legislation requiring the registration of certain writings dealing with heritable rights was described by Lord Fullerton giving the judgment of the majority of the whole court in Young v. Leith at p 934 as placing the requirement of registration ‘on its true ground, viz, the security of persons dealing with the apparent proprietors, against the effect of latent deeds qualifying or limiting their ostensible rights’.

Accordingly the purpose of registration is not to strengthen the position of the grantee of a deed against actings on the part of the granter but to enable third parties to deal with a registered proprietor safe in the knowledge that there are no hidden qualifications or impediments in his title. In addition, a recorded title is in normal circumstances good against third parties as well as the granter.

In Carse v. Coppen Lord President Cooper observed at p 239 ‘that it is clear in principle and amply supported by authority that a floating charge is utterly repugnant to the principles of Scots law and is not recognised by us as creating a security at all’.

Thus when floating charges were introduced by the Companies (Floating Charges) (Scotland) Act 1961 they were a novel concept in the law of Scotland. They require to be registered after granting but only in the register in the companies office. They may never crystallise. However, if they do and thereby attach to heritage it has been generally accepted that they have the immediate effect of a recorded standard security. The result is to create a real right in land which has not been recorded in the appropriate register of heritable rights and which takes precedence over any prior grant of heritable rights which has not already been recorded. This is indeed a significant innovation.

The appellants accepted that a good feudal title to the flat could only have been acquired by recording Albyn's disposition but they argued that property for the purposes of the floating charge and sec 53(7) was not synonymous with a feudal title to heritage. Rather did property in the context of heritage connote the current beneficial interest in the subjects which was capable of lawful disposal. In this case Albyn, by accepting the purchase price and delivering the disposition, ceased to have any beneficial interest in the subjects and could not lawfully intromit therewith in any way. The respondents on the other hand maintained that the property in the flat was at all material times in Albyn, that the delivery of the disposition did no more than carry a defeasible personal right enforceable against the disponers. In the law of Scotland property in heritage was always vested in the holder of the recorded title thereto.

The argument for the respondents which was accepted by the First Division produces a most inequitable result for the Thomsons and the appellants who have between them paid the full price for the flat and will be left to rank with other creditors in any proceedings to recover what they have paid. Conversely, the holders of the floating charge will have available as a fund out of which to satisfy Albyn's indebtedness to them, not only so much of the purchase price as remains in bonis of Albyn but also such sums as they may realise on any sale of the flat. Albyn's property for the purposes of sec 53(7) theoretically includes both the purchase price and the flat itself. On any view this would be a most unjust result. However, if the undoubted effect of the relevant legislation is to produce such a result, injustice cannot stand in the way of a decision in favour of the respondents. It must then be for Parliament, if so advised, to remedy the situation.

It was accepted by both parties that there were effectively three stages in a completed sale of heritage, namely (1) the conclusion of missives, (2) the delivery of the disposition to the disponee and (3) the recording of the disposition by the disponee. However, there was dispute between them as to the effect of stage 2, the appellants arguing that it was significantly different to that of stage 1 in that it transferred all beneficial interest in the subjects to the disponee and the respondents maintaining that there was no material difference between the effect of the two stages.

At stage 1 the seller of heritage is divested of no part of his right of property in the subjects (Gibson v. Hunter Home Designs Ltd at p 27 per Lord President Emslie) and the buyer has merely a personal right or jus crediti against the seller to enforce the latter's obligations in the missives. At stage 2, however, the position has changed because the seller has done all that is required of him in terms of the contract and it is action by the buyer alone which is required to complete a feudal title. Furthermore, the buyer's position is significantly altered inasmuch as he can, inter alia, dispose of the subjects to a third party by a conveyance in which he deduces his title from the person last infeft (sec 3 of the Conveyancing (Scotland) Act 1924). He may create a security over it (sec 12 of the Conveyancing and Feudal Reform (Scotland) Act 1970). He may also pursue possessory remedies in relation to the subjects (see Earl of Fife v. Duff at p 941). However, in the end of the day it is not what rights the buyer acquires by delivery of the disposition with which this appeal is concerned but what rights are left in the seller. The appellants submitted that the seller is bereft of all beneficial enjoyment and is left with a bare title while the respondents argued that he owns the property by virtue of his title. Support for the appellants' submission is to be found in Professor Halliday's Conveyancing Law and Practice in Scotland(2nd edn, 1996), vol I, para 1–13, where the author states: ‘The basic rule of traditionibus non nudis pactis dominia rerum transferuntur applies to the effect that in a question between the parties the document of transfer or conveyance, when duly delivered, transfers a right of ownership to the grantee. As between the granter or his executors and the grantee or his representatives delivery of the document of transfer or conveyance excludes the property from the ownership of the granter.¹⁷’ (Footnote 17 refers to Thomas v. Lord Advocate .)

Professor Halliday is not there saying that the buyer on delivery of a disposition acquires a real right but rather that as between buyer and seller the latter has no longer any beneficial rights in the property. The respondents traversed this submission by arguing that such rights as are possessed by the buyer are merely personal which must give way to the real right remaining in the seller by virtue of his infeftment and that in law the position of the seller is the same under stage 2 as it is under stage 1.

Central to the appellants' argument was the decision of this House in Heritable Reversionary Co Ltd v. Millar . In that case it was held that heritable property to which a bankrupt had an unqualified feudal title but in which he had no beneficial interest was not his property for the purposes of sec 102 of the Bankruptcy (Scotland) Act 1856 and therefore did not vest in his trustee. Although the disposition to the bankrupt was in unqualified terms, he had acquired the subject on behalf of his employers and had executed a formal declaration by which he acknowledged that he held the subjects in trust. Lord Herschell said at p 44: ‘Wherever, therefore, it has to be determined whether heritable or any other estate vested in the trustee, the first question which arises is, was it the "property of the debtor"? The expression is not a technical one, but is obviously intended to comprehend all that would ordinarily be understood as covered by it. It cannot be doubted that it includes all beneficial interests possessed by the bankrupt, even though the property be vested in other persons as trustees for him. On the other hand, I cannot think, unless compelled by authority to take that view, that it includes or was ever intended to include, estates of which the bankrupt was a bare trustee, and in which he had no beneficial interest.’

Lord Watson in a long and carefully reasoned speech after referring to sec 102 of the Bankruptcy (Scotland) Act 1856 continued, at pp 49–50: ‘Were the subjects in dispute the property of McKay, within the meaning of that enactment, at the date of his sequestration? Upon the language of the statute, that appears to me to be a very simple question, admitting only of a negative answer. An apparent title to land or personal estate, carrying no real right of property with it, does not, in the ordinary or in any true legal sense, make such land or personal estate the property of the person who holds the title. That which, in legal as well as in conventional language, is described as a man's property is estate, whether heritable or moveable, in which he has a beneficial interest which the law allows him to dispose of. It does not include estate in which he has no beneficial interest, and which he cannot dispose of without committing a fraud. It is true that the law will sustain a right created by his fraudulent alienation in the person of a bona fide alienee for value, but not, as has been already pointed out, upon the ground that the thing alienated was the property of his author.’

Lord Watson had earlier pointed out (p 47) that the validity of a right acquired by a bona fide disponee for value from a trustee who was in breach of trust depended on the principle that a true owner who chooses to conceal his right from the public is barred from challenging rights acquired by innocent third parties. Lord Watson said at p 50: ‘I venture to think that the property described in these four Acts as falling within the sequestration includes no heritable or other estate of which the bankrupt was not the true owner. That construction gives effect to the literal meaning of their language; and it is to my mind hardly conceivable that the legislature should have intended to confiscate the property of persons other than the bankrupt for the behoof of his creditors, by requiring him to execute a disposition in favour of their trustee, which but for the statute he could not have granted without being guilty of the crime of breach of trust and embezzlement.’

In the First Division the Lord President in relation to Millar expressed the opinion that the exception which excluded property held in trust from a bankrupt's estate was well established but was an exception which was sui generis and not capable of being extended to other situations contrary to the established rules of Scots property law (Sharp v. Thomson at p 479B). Not surprisingly the respondents relied on these observations. I have two comments to make on the views of the Lord President. In the first place this House in Millar was seeking to determine what fell within the description of property for the purpose of the Bankruptcy Act. Lord Macnaghten observed at pp 52–53: ‘It was argued that the question depends upon the feudal law of Scotland and upon certain provisions of the Bankruptcy Act of 1856. I venture to think that it turns wholly upon the language of the Act, and that a decision in favour of the company would not in the slightest degree trench upon the principles of the feudal law.’

I consider that these observations apply equally to the present case. In the second place, so far as their right of property is concerned I see no distinction in principle between the position of the holder of an ex facie absolute recorded disposition who holds as a bare trustee or in security, having granted a back letter, and the holder of such a deed who has delivered a disposition to a disponee in exchange for the price. In neither event has the holder any beneficial interest in the subjects. In the former case, he never had it and, in the latter case, he has effectively disposed of it. The result, however, is in both cases the same and how it was reached, is to my mind, immaterial to the determination of whether the bare title which remained in the holder at the relevant time amounted to property within the meaning of a particular statute. It is significant that Lord Watson's observations as to what can be described as a man's property were couched in entirely general terms and not restricted to the facts of the case before him.

The appellants referred to a number of other cases in which the question of what constituted heritable property had arisen in different contexts. I refer only to three. In Bowman v. Wright the Second Division held that a domiciled Englishman who had sold his only heritage in Scotland prior to the service upon him of a summons was not subject to the jurisdiction of the Scottish courts by virtue of proprietorship of heritage notwithstanding the fact that the disposition which had been delivered to the disponee prior to the service had not by that time been recorded. Lord Justice-Clerk Moncreiff said at p 325: ‘The only question, therefore, is, was Wright proprietor at the date of citation of any heritage within Scotland, for it is admitted that he has acquired none since? I am of opinion that he was not, for he had sold what he previously had, and the right to it was vested in the purchaser, so far at least as he, Wright, was concerned. I do not think that it matters that under the Act of 1617, cap 17 [sic], the disponee's right might have been evacuated in favour of a second bona fide purchaser first infeft, or might have been burdened by a lease granted after the date of the disposition. These are rights which the Legislature has thought proper to confer on bona fidepurchasers, taking advantage of our system of registration, and upon tenants, but not rights remaining in the original seller, who has done all he could to divest himself. It comes to this, that anything which the defender could have done to affect the property would not have been the exercise of a right but the commission of a fraud, and the power to affect property by the commission of a fraud cannot be treated as a right of property. Being thus of opinion that this matter is to be looked on according to the reality and substance of the thing, I am clear that we have no jurisdiction over this defender, and have no alternative but to dismiss the action. His creditor may sue him in his proper forum.’

Millar was followed in Forbes's Trustees v. Macleod in which it was held that a bond and disposition in security which was the subject of a recorded ex facie absolute assignation with a back letter by the assignee and which had already been redeemed by the assigner did not pass to the trustee in sequestration of the assignee. Lord McLaren said at p 1015: ‘[E]ven where the title is ex facie unqualified and enters the record as such, the creditors of the ex facie absolute proprietor can take no higher right than he himself possessed. This was the point decided by the House of Lords in the case of the Heritable Reversionary Company v. Millar, and the principle of that decision obviously governs security titles as well as trusts. When Carrick was paid his debt he ceased to have any pecuniary interest in the subjects, his title being then merely nominal. It follows, in my opinion, that the second party is bound to retransfer the subjects unconditionally.’

Thomas v. Lord Advocate concerned estate duty on property passing on death under the Finance Act 1894. Lord Patrick, after pointing out, at p 161, that once a disposition had been delivered by the disponer to the disponee the former could no longer deal with the interest which he formerly possessed in the lands except by a disposition in fraud of the latter, said: ‘It does not seem possible to contend that on delivery of such a disposition no property passes to the disponee. All the property the disponer had passes at once. Recording of the disposition in the Register of Sasines will only make real a right which was previously personal. As between disponer and disponee the transfer of all the former's interests is at once complete upon delivery of the disposition and, if the disposition is gratuitous, the gift of such interests in land as the disponer had to give is complete.’

Although two of these cases related to the meaning of property in contexts somewhat different from the present, the Lord Justice-Clerk and Lord Patrick approached the matter in a pragmatic way and looked to see what the disponer was left with after delivering the disposition. If there had been a fundamental principle of Scots law that property in heritage could, subject to the exception referred to by the Lord President, only reside in the holder of the recorded title thereto, these two cases must have been decided differently. It is interesting to note that in Gibson v. Hunter Home Designs Ltd Lord President Emslie observed at p 27: ‘In the law of Scotland no right of property vests in a purchaser until there has been delivered to him the relevant disposition. On delivery of the disposition the purchaser becomes vested in a personal right to the subjects in question and his acquisition of a real right to the subjects is dependent upon recording the disposition in the appropriate Register of Sasines. Putting the matter in another way the seller of subjects under missives is not, in a question with the purchaser, divested of any part of his right of property in the subjects of sale until, in implement of his contractual obligation to do so, he delivers to the purchaser the appropriate disposition. Until the moment of delivery the purchaser, even if he has paid the price and obtained occupation of the subjects, has no more than a right under the contract of sale, the missives, to demand performance by the seller of his contractual obligation to convey. Such right as the purchaser has, accordingly, is no more than a jus crediti until delivery of the disposition for which he contracted has been made to him.’

These observations in relation to stage 2 were obiter but the Lord President clearly thought that there was a significant alteration of the position as between the first and second stages. A view with which I entirely agree, but which was not shared in this case by Lord President Hope, who considered that the right of ownership remained vested in the seller so long as he retained the real right and that he was merely restricted in the exercise of his rights of ownership by his contract with the purchaser (Sharp v. Thomson, p 471C).

These four decisions demonstrate that for statutory purposes an individual can have property in heritage even if the recorded title thereto is vested in someone else. They provide powerful support for a contention that the heritable property to which a floating charge attaches under sec 53(7) is the beneficial interest therein and not the bare title thereto shorn of all such interest. However, the respondents maintained that the sanctity of the feudal principle was the basis of their argument and they relied on a number of authorities which must now be examined. In Mitchells v. Ferguson there was competition between posterior adjudgers whose diligence had been completed by infeftment and a prior uninfeft disponee of the debtor. After complex proceedings lasting for some years the whole court found at p 10299: ‘That the adjudication, and infeftment following upon it, are preferable to the personal disposition founded on by Ferguson.’ The respondents argued that this was a stage 2 case where a delivered disposition yielded not to a bona fide purchaser for value but to adjudgers who had given no further value for their decree. The factual basis of this argument must be doubtful, since it appears from the voluminous pleadings that, although the disposition was executed by the debtor, it may have been delivered not to the disponee but to the debtor's man of business, pending payment of the purchase price by the disponee. That would suggest that it was a stage 1 rather than a stage 2 case and that was certainly the view of Lord Watson in Millar, when, after referring to a number of authorities which included Mitchells v. Ferguson he said at p 48: ‘These authorities were brought fully under your Lordships' notice by counsel; but, in my opinion, they have little, if any, bearing upon the point which your Lordships have to decide, because in all of them the competition related, not to estate held by the bankrupt under a bare trust, but to estate of which he was the beneficial proprietor.’

In these circumstances I do not consider that Mitchells v. Ferguson assists the respondents.

In Young v. Leith the issue was whether an unregistered sasine (a service as heir and a precept from Chancery) was a nullity in regard to a real right or whether it truly completed a real right to heritage. The majority of the whole court on a remit from this House held that it was a nullity. Lord Fullerton, who gave the judgment of the majority, said at p 937: ‘The proper object and effect of every valid seisin is to divest the granter of the heritable right, and to invest the grantee. When that legal act is once completed, it absolutely excludes the acquisition of any subsequent real right from the granter, preferable to that of the party seised, or, indeed, the acquisition of any real right, through any other medium than the right of the party so seised. An instrument of seisin, which has not in law that effect, is practically null as a seisin, i.e., as an act completing a real right; for it does not produce the effect which it is the sole and peculiar object of a valid seisin to secure.’

When the case was first before the Court of Session (1844), Lord Mackenzie observed at p 373, ‘but an unregistered sasine can be good only against a maker and here there is no maker’. The Lord President (Sharp v. Thomson, p 467H said: ‘I have already said that in my view the arguments relating to the use of the phrase "complete real right" read too much into the use of these words. But on closer examination of the opinion delivered by Lord Fullerton, it is, I think, clear beyond question that the judges in that case were intent in resolving the issue of what was required to divest the granter of his right of property and to invest a right in the grantee.’

If by using the word ‘property’ the Lord President intended to refer to the real or heritable right of the granter, I would respectfully agree with him. But if he was intending to refer to property in the wider sense as including beneficial interest, I must disagree. Young v. Leith was concerned solely with whether real rights could be created by deeds dependent upon prior unregistered sasine. It did not have occasion to consider property in the wider sense nor to consider what effect an unrecorded deed had vis-à-vis the granter. Lord Coulsfield (Sharp v. Thomson, p 492D) was correct in saying that it did not rule this case. Indeed, it did no more than lay down what the appellants accepted, namely that an unrecorded sasine does not create a real right good against the world.

Bank of Scotland v. Liquidators of Hutchison Main & Co Ltd arose out of a transaction between a company and its bank whereby, inter alia, the former undertook to obtain from one of its debtors a debenture over his assets which they would assign to the bank. The debenture was duly obtained but before it had been assigned the company went into liquidation. The bank's claim that the company held the debenture as trustee for its behoof was rejected as untenable on the ground that at the most the company had come under a contractual obligation to obtain and assign it. As matter of fact the debenture did not exist as at the date of the agreement. When it was created the assignation thereof was not delivered and no intimation was made to the granter of the debenture. All in all it is difficult to conceive of a more obvious stage 1 case. The decision however does not support the respondents' submission that there is no difference between stage 1 and stage 2. Lord Shaw of Dunfermline, after remarking at p 15 that the doctrine of converting a promise to transfer into something which effects a transmutation of real ownership into merely apparent ownership is legally indefensible and referring to Forbes's Trustee v. Macleod, said at pp 15–16: ‘The apparent title and the beneficial and real title are in conflict, not on account of the existence of any promise on the part of the manager to transfer it to the company, but on account of the fact that the property all along never was the manager's but was the company's. It would be, therefore, contrary to the truth of the case to permit that property to enter the assets of the manager, to whom it never in truth belonged. The company stands accordingly preferred to the property in the distribution of his assets.

‘Heritable Reversionary Company v. Millar is the outstanding instance of this .... But what is necessary in all such cases is that the question of property itself in what I have ventured to call a real and beneficial sense is settled adversely to the debtor—settled, that is to say, in this way, that the property does not belong to him, but belongs to someone else.’

These dicta further demonstrate the difference between the position of a seller who has done no more than agree to convey heritage to another and that of one who has accepted the price and delivered a completed disposition, having thereby done all that is required of him to enable the disponee to perfect his title. Craigie in his Scottish Law of Conveyancing: Heritable Rights (3rd edn), p 434 draws the distinction between one having a personal title or right to lands by virtue of delivery to him of a disposition thereof by an infeft proprietor and one having a right (jus crediti) to demand the conveyance of land in his favour. Gloag and Irvine's Rights in Security similarly draws a distinction between one having a mere jus crediti and one who, albeit not yet infeft, has a complete personal title to lands (pp 29 and 33).

My Lords, the respondents' authorities do nothing to detract from the force of the appellants' argument. Indeed, the appellants were neither seeking to elevate the delivery of a disposition per se into the creation of a real right nor to qualify the rule that recording is necessary to perfect a title good against bona fide third parties. Furthermore, the appellants accepted that the rights conferred by Albyn's disposition would have yielded to a disposition in favour of a bona fide purchaser for value recorded prior to 21 August 1990. They were accordingly not seeking to challenge any of the propositions anent feudal rights contained in the respondents' authorities, which propositions did not assist in resolving the issue which I posed at the outset. There is in my view no principle which requires that the word property occurring in relation to crystallisation of a floating charge must be given the restricted meaning sought by the respondents. There is on the other hand everything to be said for giving it a practical, commonsense meaning which is likely to produce fair and equitable results between the parties affected by the crystallisation.

I turn to consider the current statutory provisions relating to floating charges. Section 462(1) of the Companies Act 1985 provides inter alia: [His Lordship quoted s 462(1) as set out above and continued:]

The floating charge granted by Albyn echoed, with minor differences, the words which I have underlined in the subsection. Section 51 of the Act of 1986 empowers the holder of a floating charge to appoint a receiver of such part of the property of the company as is subject to the charge and sec 52 of that Act sets out the circumstances which justify such appointment. The effect of an appointment is provided for in sec 53(7). By virtue of sec 55 of and Sched 2 to the Act of 1986 the respondents had the power, inter alia, to take possession of Albyn's property and to sell it.

Property is not a technical legal expression and neither in the Companies Act nor in the Act of 1986 is there to be found any exhaustive definition of the word. It is therefore appropriate to construe ‘property and undertaking’ in a practical and realistic way, having regard to the context in which the expression occurs. The purpose of a floating charge is to provide security to the holder in preference to the general creditors and the role of a receiver, once appointed, is to deal with the property of the company to which the floating charge has attached in such a way as to satisfy the debt thereby secured. There is nothing in the legislation which specifically confers on a receiver the right to do that which the company could not have done. Had Albyn, after receiving the price and delivering the disposition to the Thomsons, carried out the same exercise with a third party or granted a standard security over the flat in exchange for a loan, it would have committed a fraud but the ability to commit such a fraud does not amount to a beneficial right of property (Millar). If the respondents were entitled now to sell the flat for which Albyn had already been paid, they would effectively be confiscating that in which the only beneficial interest was in the Thomsons and the appellants and doing that which Albyn could not lawfully have done. The words of Lord Watson in Millar at p 50 to which I have already referred are here particularly apposite. Had the legislation intended to confer confiscatory powers upon receivers such as are given neither to trustees in bankruptcy nor to liquidators, it is more than remarkable that there is no specific provision to that effect. In my view, when the provisions above quoted refer to property and undertaking they must be given the practical meaning of property which is available for the use of the company, in which it has a beneficial interest, and which it is in law entitled to dispone or subject to heritable security. These provisions are concerned with what is lawfully available to satisfy a company's obligations to the holder of a floating charge and not with formalities of feudal title.

The position of a receiver appointed under a floating charge differs from that of a trustee in bankruptcy or a liquidator in that it is accepted that his appointment creates a real right in security over the company's heritage, whereas the act and warrant of confirmation without registration does not clothe the trustee in sequestration with a feudal title to the bankrupt's heritable estate. Similarly, a liquidator on appointment does not thereby acquire a real right to the company's heritage. These distinctions are basically procedural. However, if the respondents' argument were correct, it would mean that not only does the holder of the floating charge have the procedural advantage of obtaining a real right in security without having to record any document of creation but that he obtains a further advantage in acquiring a right over heritable property which could not be obtained by a trustee in sequestration or a liquidator. It would require a very clear statutory provision to persuade me that Parliament intended such a result.

My Lords, I summarise the position. At the time when the floating charge crystallised by the appointment of the respondents. Albyn held the recorded title to the flat but had no beneficial interest therein. The ability to grant deeds in fraud of the disposition to the Thomsons did not amount to a right of property in law. The effect of sec 53(7) of the Act of 1986 was to make available as security all the property in which Albyn had a beneficial interest. Since Albyn had no such interest in the flat at the date of crystallisation, it follows that the floating charge did not attach thereto. I would for these reasons allow the appeal.

LORD STEYN —My Lords, for the reasons given by my noble and learned friends Lord Jauncey of Tullichettle and Lord Clyde in their printed speeches I too would allow the appeal.

LORD CLYDE —My Lords, on 2 July 1984 Albyn Construction Ltd (‘Albyn’) granted a floating charge in favour of the Bank of Scotland. The floating charge was expressed to be ‘over the whole of the property (including uncalled capital) which is or may be from time to time, while this instrument is in force, comprised in our property and undertaking’. By missives dated 14, 21 and 29 March and 23 May 1989 Albyn agreed to sell a flat at 10 Whinhill Road, Aberdeen, to the first defenders. The first defenders borrowed £40,000, being the purchase price less certain extras, from the second defenders, who are the present appellants. The £40,000 was paid to Albyn on or about 12 June 1989. The first defenders took occupation of the flat then or shortly before that date. On 8 June 1989 the Bank of Scotland executed a letter confirming that they would take no steps to deprive Albyn of the right validity to convey the flat provided that the disposition was recorded within twenty-one days of that date. However, neither that letter nor any disposition was delivered in June 1989. No further letter of non-crystallisation was obtained from the bank. On 9 August 1990 in exchange for a cheque for the balance of the purchase price a disposition of the flat was delivered by Albyn's solicitors to the first defenders' solicitors. On 10 August 1990 the respondents were appointed as joint receivers of Albyn and the floating charge then crystallised. On 21 August 1990 the disposition in favour of the first defenders was recorded in the Register of Sasines along with a standard security which the first defenders had granted in favour of the appellants. The receivers subsequently sought declarators that the floating charge attached to the flat on the appointment of the receivers, that the floating charge operated as if it was a fixed security over the flat with priority over the standard security granted in favour of the second defenders, and that the receivers were entitled to take possession of the flat and then sell or otherwise dispose of it. The Lord Ordinary granted these declarators and that decision has been upheld by the First Division of the Court of Session. The second defenders have now appealed.

The creation of a floating charge was, as was affirmed in Carse v. Coppen, foreign to Scottish common law. Floating charges were, however, recognised under English common law and, since it was believed that they were convenient and advantageous for commercial business, provision was made by statute to enable this form of security to be available in Scotland. That was done originally by the Companies (Floating Charges) (Scotland) Act 1961. The provisions were re-enacted with modifications by the Companies (Floating Charges and Receivers) (Scotland) Act 1972. The intention behind the innovation must have been that those with commercial interests in Scotland should be as well served as their English counterparts. But in relation to land law the two systems were in principle distinct. The introduction of this form of charge into a legal system to which it did not naturally belong provides part at least of the reason for the problem which has arisen in the present case.

The present statutory provision for the creation of a floating charge is to be found in sec 462(1) of the Companies Act 1985. It provides that: [His Lordship quoted sec 462(1) as set out above (without the emphasis) and continued:]

By sec 410(2) of that Act a floating charge is void against the liquidator or administrator and any creditor of the company unless it is delivered to or received by the Registrar of Companies for registration within twenty-one days after the date of its creation. In relation to immovable property sec 462(5) provides that a floating charge ‘has effect in accordance with this Part and Part III of the Insolvency Act 1986 in relation to any heritable property in Scotland to which it relates, notwithstanding that the instrument creating it is not recorded in the Register of Sasines or, as appropriate, registered in accordance with the Land Registration (Scotland) Act 1979’.

Part III of the Insolvency Act 1986 is concerned with receivership. Sections 51 and 52 provide for the appointment of a receiver or joint receivers of such part of the property of the company as is subject to the charge either by the holder of a floating charge or by the court on the application of the holder of a floating charge. An appointment of a receiver by a holder of a floating charge under sec 51(1) requires to be done by means of a validly executed instrument of appointment under sec 53(1). That subsection requires a copy of the instrument of appointment by which the receiver is appointed to be delivered to the Registrar of Companies for registration within seven days of its execution and the registrar is bound to enter the particulars of the appointment in the Register of Charges. By virtue of sec 53(6) the appointment is deemed to be made on the day and at the time at which it is received by the receiver provided that he accepts it before the end of the business day next following that on which he received it. Section 53(7) then provides: [His Lordship quoted sec 53(7) as set out above and continued:]

In relation to the final words of that subsection sec 70(1) provides that ‘fixed security’, in relation to any property of the company, means: ‘any security … which on the winding up of the company in Scotland would be treated as an effective security over that property, and (without prejudice to that generality) includes a security over that property, being a heritable security within the meaning of the Conveyancing and Feudal Reform (Scotland) Act 1970.’

I proceed upon the basis which has been generally assumed to be correct in this case that in relation to heritable property the effect of a floating charge on crystallisation is deemed to be that of a duly recorded standard security creating a completed security and a jus in re over the heritable property. Such a view is supported by the decision of the First Division in National Commercial Bank of Scotland Ltd v. Liquidator of Telford Grier Mackay & Co Ltd, which concerned the position under a liquidation and the provisions of the Act of 1961. It is to be noted from the statutory provisions that not only is there no requirement for the floating charge to be recorded in the Register of Sasines or registered in the Land Register but the floating charge will crystallise over the property of the company before notice of the appointment of the receiver has been entered by the registrar in the Register of Charges.

It is in my view important to identify precisely the question which is raised in the present case. The question here is not as to the effect of the crystallisation of the floating charge nor is it a question of any race to the register between the purchaser and the holder of the floating charge. The question is whether the flat at Whinhill Road was within ‘the property … comprised in our property and undertaking’ of Albyn when the floating charge crystallised. That is a question of the construction of the terms of the floating charge or, insofar as those terms echo the statutory language, the words of sec 462(1). The whole approach, however, taken by the Scottish courts was based on the proposition that the floating charge required to be construed against a background of the law relating to heritable securities and the Scottish system of property law. But it is at that stage that I would respectfully diverge from the path which the judges in the lower courts below have taken, at least to the extent that it restricts attention to the law relating to property and heritable securities. It also seems to me that the effect of the floating charge on the property to which it attaches is a matter secondary to the critical question which is raised in the case, namely whether on crystallisation the floating charge attaches to the flat at all. A like distinction was noted by Lord Watson in Heritable Reversionary Co Ltd v. Millar at p 49.

As the argument before this House developed, it became clear that no challenge was being made of the careful analysis made by the judges of the First Division of the basic concepts of Scottish law which apply in the area of heritable property. A basic distinction between real rights and personal rights was not questioned. It was not suggested that there is any kind of hybrid right somewhere between a real right and a personal right. It was accepted that Scottish law holds to a unitary theory of ownership by which only one right of ownership can exist in respect of any one thing at any one time. The principles recognised in Young v. Leith were not disputed.

The appellants' argument before this House does not seek to answer the critical question by founding upon considerations of the law of property but rather rests on the ordinary use of language. This approach leaves aside any analysis into real or personal rights or formal title but looks to a definition of property for the purpose of the terms of the floating charge which relates to the substantial beneficial interests of the purchaser as opposed to the bare title retained by the seller. On that approach it is said that, at the moment of crystallisation, the flat did not belong to Albyn and, in that sense, was not comprised in its property and undertaking.

The word ‘property’ is not a technical term of Scots law. It can take its meaning from the context in which it occurs. It is not disputed that the holder of an unrecorded disposition does not have a real right to the subjects of the conveyance. But it is accepted that for some purposes he may be recognised as an owner or proprietor. Examples can be found in the jurisdiction cases which were canvassed in the First Division, such as Bowman v. Wright . In the context of estate duty, in Thomas v. Lord Advocate, the delivery of a disposition was held to have the effect of removing the subjects of the gift from the property which passed on the death of the decreased. These cases are of course concerned with different questions from that which arises in the present case. But they serve to emphasise the point that ‘property’ and feudal title may not be synonymous. There is no general requirement to equiparate ‘property’ with real right or feudal title so as to make these terms equally coextensive.

Heritable Reversionary Co Ltd v. Millar is particularly instructive. In that case the bankrupt was a bare trustee holding the title to the subjects for the benefit of the company and it was held that the subjects did not form part of ‘the whole property of the debtor’ so as to vest in the trustee in his sequestration. The view was taken that although the bankrupt had an unqualified feudal title to the heritable property, it nevertheless did not belong to him. Lord Herschell said at p 44 of the phrase ‘the property of the debtor’: ‘The expression is not a technical one, but is obviously intended to comprehend all that would ordinarily be understood as covered by it. It cannot be doubted that it includes all beneficial interests possessed by the bankrupt, even though the property be vested in other persons as trustees for him. On the other hand, I cannot think, unless compelled by authority to take that view, that it includes, or was ever intended to include, estates of which the bankrupt was a bare trustee, and in which he had no beneficial interest.’

Lord Watson stated at pp 49–50: ‘An apparent title to land or personal estate, carrying no real right of property with it, does not, in the ordinary or any true legal sense, make such land or personal estate the property of the person who holds the title. That which, in legal as well as in conventional language, is described as a man's property is estate, whether heritable or moveable, in which he has a beneficial interest which the law allows him to dispose of. It does not include estate in which he has no beneficial interest, and which he cannot dispose of without committing a fraud.’

Lord Macnaghten also expressed the view that the words ‘property’ and ‘belonging to him’ in the statutory provision there under consideration were to be understood in their ordinary signification. He stated at pp 53–54: ‘They are, in fact, convertible terms—you can hardly explain the one except by using the other. A man's property is that which is his own—that which belongs to him. What belongs to him is his property. No one in ordinary parlance would speak of lands or funds held only in trust for another as the property of the trustee. Lands or funds so held are not the trustee's property in any real sense any more than a bankrupt's sequestrated estate is the property of the trustee in bankruptcy. It is true that in the present case the complete feudal title was in the bankrupt. It is true that in a strict legal view the right of the beneficiaries was only a personal claim against the trustee. But for all that the bankrupt could not have applied the property to his own purposes, or used it for his own benefit, without committing a fraud for which he might have been made criminally responsible. The beneficiaries were the true owners all along. The bankrupt, though he had the feudal title, though he might have given a perfectly good title to a person dealing with him on the faith of the register without notice of the trust, was in reality only nominal owner without any property or proprietary right.’

Counsel for the respondents stressed that in Heritable Reversionary Co Ltd v. Millar there was a trust and he pointed out that the element of trust runs through the speeches in that case as a material consideration. That is of course correct. Indeed a like comment can be made of Hinklebein v. Craig, where a proprietor had undertaken to hold the subjects in trust for others and the subjects were held not to fall into his own sequestration. But while the element of trust is a point of difference from the present case, the decision remains instructive in relation to the approach taken by this House. That approach involved a construction of the word ‘property’ in its legal and conventional sense. It involved a consideration of the substance and reality of the debtor's interest and the recognition that only what belongs to the debtor should be available to satisfy the debtor's creditors. Heritable Reversionary Co Ltd v. Millar is an illustration of these principles, not an exceptional case restricted to consideration of trusts. Indeed the editor (T A Fyfe) of the fourth edition of Goudy's Treatise on Bankruptcy edited in 1914 comments, in a footnote (c) on p 251, that the definition of property in the passage in Lord Watson's speech which I have already quoted ‘would seem to exclude the property sold by the bankrupt upon a delivered conveyance which has remained unrecorded’. Counsel for the respondents also pointed to the distinction drawn in that case between the situation of one who is a bare trustee and an owner who has come under a contractual obligation to convey the property to another. But while the subjects in the latter situation may well remain within the property of the debtor, the situation in the present case is distinguishable in respect that Albyn had lost the beneficial interest in the flat as well as the power lawfully to dispose of it.

In my view there are sound reasons for preferring a construction of the floating charge which looks to the ordinary use of language rather than a strict application of the principles of property law. The property over which the charge extends is property comprised in the company's property and undertaking. The final word of that phrase seems to me to take one away from any exclusive concentration on the word property, to look to the variations in the identity of the property which may occur during the continuing course of the company's business, and to invite a less strict construction which may take account not only of title but of beneficial interest. Even if the subjects must be in the legal ownership of the company for the charge to attach, it does not follow that everything over which it has a real right falls within its property and undertaking. In particular, when the company has, as here, sold a heritable subject and delivered a disposition of it to the purchaser so that the company only retains the bare title, has no right and obligation to do anything more as regards the subjects beyond the negative obligation of refraining from conveying them to anyone else, and indeed no longer has the right of lawful disposal, I do not consider it correct to regard the subjects as part of the company's property and undertaking.

As I have already observed, the creation of a floating charge was something alien to Scottish law. Not only is this true of the nature of the security before its attachment but the fact that it can on the event of its crystallisation have the effect of a recorded heritable security without prior recording in a public register cuts across a basic principle of Scots law. The floating charge sits uneasily in a system with whose principles it does not accord. In these circumstances, it is reasonable to prefer a narrow rather than a generous construction of its terms. Furthermore, it seems to me correct to recognise that the introduction of the floating charge to Scotland must have been made in order that something of the same commercial benefits as were enjoyed in England should be available in Scotland and, accordingly that it must have been the intention of Parliament to achieve as far as possible that the effect of the charge in Scotland should accord with the effect of the charge in England. There seems to be no doubt that in England such a charge as is here in question would not attach to lands which have been the subject of a transaction comparable with that which has taken place in the present case.

The present case has some features in it which are, at least as one would hope, unusual. But even if that is recognised, the decision reached in the lower courts appears unattractive and unfair. It would be unfortunate if the law had to be so applied as to compel such a result. The embarrassment of debtors may often involve a loss for those who have transacted with them. The necessity of obtaining a letter of non-crystallisation may not be an altogether satisfactory expedient for obtaining protection over the period until a purchaser can obtain a secure title. But if the creditors are to be treated fairly, it seems curious that the assets of the debtor should be taken to include both the subjects which have been sold and the price which has been received for them. To use the words of Lord Field in Heritable Reversionary Co Ltd v. Millar at p 55, such a result ‘would involve the great injustice of applying one man's property in satisfaction of another man's debt’. Moreover, on the respondents' argument the receivers achieve by virtue of the floating charge a position superior to the debtor, in that they have a power to make a lawful sale of the subjects although the debtor by virtue of his bare title only possessed an ability to sell which he could not lawfully exercise. Furthermore, the receivers obtain this privilege without the necessity which may affect a liquidator or a trustee in bankruptcy of recording their title and perhaps engaging in a race to do that. All this supports a narrow rather than a generous construction of the terms of the charge.

Counsel for the respondents submitted that, if the appellants were correct, the point and purpose of the register would disappear and property would pass privately without the public act which has so long been a tradition in Scots law. He gave examples of cases where the failure to complete a formal title could be fatal in a competition. Thus in Strachan v. McDougle an unintimated assignation of a policy of life assurance did not prevail against an arrestment of the proceeds. In Morrison v. Harrison an assignation of shares intimated and recorded in the company's register after sequestration defeated a claim of the trustee who had failed to complete that statutory formality. In a similar way counsel sought to argue that the recording of the title to the flat was essential to save it from attachment by the floating charge. But the relevance of all of this rests on the critical question of the meaning to be given to the terms of the floating charge. The particular construction of the phrase ‘property and undertaking’ in the floating charge does not in any way affect or erode the ordinary law on the transference of moveables or immoveables. The appellants' argument is concerned not with the methods for transferring real rights but with the meaning of the words ‘property and undertaking’ in the particular context of the floating charge. As Lord Macnaghten observed of the question discussed in Heritable Reversionary Co Ltd v. Millar at p 53: ‘I venture to think that it turns wholly upon the language of the Act, and that a decision in favour of the company would not in the slightest degree trench upon the principles of the feudal law.’

Nor on the appellants' approach are we immediately concerned with the position of the disponees, the first defenders. That aspect of the situation was, however, developed by counsel for the respondents with a view to showing that the flat was still the property of Albyn. But the cases on which he particularly founded do not provide sufficient support. In Mitchell v. Ferguson it was affirmed that an adjudication which had been followed by infeftment is preferable to a personal disposition. In the somewhat complex history of the case it is not altogether clear that the disposition had been delivered to Ferguson, but even if it had been delivered, the case only illustrates one of the risks which may threaten the position of the holder of a personal right. It is not disputed that the interest of the first defenders in the present case could have been defeated by the recording of a title to the subjects by a bona fide purchaser for value without notice or indeed by an adjudication. Bank of Scotland v. Liquidators of Hutchison Main & Co Ltd is of less assistance. The debenture in that case fell into the company's liquidation because the company had done nothing beyond obliging themselves to assign it to the bank. In that case the mere obligation to assign was not enough to prevent the debenture from being in bonis of the debtor. But that decision does not bear upon the present case, where the contractual obligation on Albyn under the contract had been performed and a disposition had been delivered to the disponees.

While in terms of a strict legal analysis the holder of an unrecorded disposition still only has a personal right to the lands disponed, he has personally acquired such rights as make it reasonable to use the language of ownership in relation to him even though there has been no alteration to the quality of his right. This has been recognised in a number of cases from Earl of Fife v. Duff to Gibson v. Hunter Home Designs Ltd. As was recognised in the former case the legal effect of a disposition delivered but not followed by infeftment vests in the disponee most of the essential attributes of ownership, and the right which he enjoys is usually called a personal fee. I understand the Lord President in Gibson and indeed the judges who have followed his dicta in that case not to be intending to erode the distinction between a jus in re and jus ad rem or a jus crediti but, without analysing in any depth the position of a holder of an unregistered disposition, to be recognising that changes may occur in the substance of the right acquired by a disponee even though the essential quality of his right may remain constant. Counsel for the appellants recognised that, by delivery of a disposition, the disponer has in feudal terms enabled the disponee to obtain entry with the superior. Under the feudal law, before the various steps became submerged by the act of recording in the Register of Sasines, it would seem that the disponer should be taken to have granted a procuratory of resignation in favorem, or, as it later came to be, a clause of resignation, whereby the former vassal enabled the superior to pass the feu to the next vassal. The disponee was thus able to obtain entry with the superior and establish his feudal title. It may be noted that Craig (Jus Feudale 3.1.6., vol II, p 891), while he recognises that there may be competing resignations, describes the position in contrast with a resignation ad remanentiam in these terms: ‘The feu is, as it were, placed in the superior's hands in trust in much the same way as inheritances and bequests are made the subjects of trust-disposition; except that the resigner retains no right to the feu, and the superior reserves no right in it to himself.’

But it is more particularly with the position of the disponer that the present case is concerned. It was accepted in this case that Albyn had a bare title to the flat, a real right, but a right which was open to defeat as soon as the disponees recorded their disposition. In feudal terms Albyn was still entered with the superior but it had passed to the appellants the means for obtaining entry for themselves. It was accepted that Albyn could not lawfully do anything with the flat. While it had the title, it could convey it to a third party and, if the third party acquired it in good faith for value and without notice, that third party could obtain a good title if the deed was recorded before that of the original disponees. But such a transaction would be an unlawful or even fraudulent act by Albyn. An adjudger could similarly obtain a good title by recording his adjudication before the holder of the original disposition. But unless there was some valid ground for opposition, Albyn would only be a passive party in such a process. That a bona fide purchaser for value without notice may acquire a good title over the head of an earlier disponee who has not recorded his disposition is in accordance with the principle that people are entitled to transact on the faith of the public record. As Lord Watson observed in Heritable Reversionary Co Ltd v. Millar at p 47: ‘It must, however, be kept in view that the validity of a right acquired in such circumstances by a bona fide disponee for value does not rest upon the recognition of any power in the trustee which he can lawfully exercise, because breach of trust duty and wilful fraud can never be in themselves lawful, but upon the well-known principle that a true owner who chooses to conceal his right from the public, and to clothe his trustee with all the indicia of ownership, is thereby barred from challenging rights acquired by innocent third parties for onerous considerations under contracts with his fraudulent trustee.’

But, as he went on to point out, creditors are in a different position. He quoted Lord McLaren's observation in the court below at p 1175. ‘Creditors in general do not give credit to a bankrupt in reliance upon any supposed presumption that property standing in his name is his private property. Unless they are going to advance money on heritable security they know nothing of his title deeds and trust only to his personal credit.’

In the context of the present case where it is a creditor who is involved there is the less reason to hold that everything to which the debtor has a recorded title is necessarily to be regarded as property within his property and undertaking.

At one stage in his argument counsel for the respondents indicated that the consequences of construing the words ‘property and undertaking’ in the way for which the appellants contended would have serious consequences both for the practical operation of floating charges and for the law of Scotland. But the practical consequences when explored did not appear to involve greater difficulty than is already encountered in the kinds of enquiry which the receiver would require in any event to undertake. Counsel accepted that there were no consequences so far as moveable property was concerned and although concern was expressed in the First Division about the uncertainties in the operation of a floating charge which would follow upon the appellants' success, in the formulation of the argument which was presented before this House it was eventually not strenuously maintained that any serious problems should ensue. It had been suggested that particularly in the context of commercial practice the substance of the ‘property’ must be open to precise and ready definition. On the other hand, it does not appear to have been suggested that any particular difficulty had followed from the decision which was reached in Heritable Reversionary Co Ltd v. Millar . So far as the ordinary law is concerned, as I have already sought to explain, the approach taken by the appellants in this case does not seek to innovate upon the established principles of Scottish land law or conveyancing.

In the lower courts some argument was presented to the effect that Albyn might be regarded as holding the flat in some form of trust or constructive trust. Counsel for the appellants did not submit that, in the circumstances of this case, anything which could be described as a constructive trust had been constituted, although he submitted that circumstances could arise where, following on a conveyance where something came into the hands of the seller which he should be seen as holding for the purchaser, it might be proper to use the terminology of trust. It is sufficient to observe that whatever meaning is to be given to the expression ‘constructive trust’, nothing can be said in the present case to have been delivered to the seller so as to enable the concept of trust to apply.

In my view the receivers were not entitled to the declarators which they have sought in this action and the appeal should be allowed.