Sharp v. Thomson, House of Lords (Lord Brown-Wilkinson, Lord Keith of Kinkel, Lord Jauncey of Tullichettle, Lord Steyn and Lord Clyde) 27 February 1997, [1997] SLT 636

George Gretton, Ralf Michaels, Eugenia Dacoronia

Research output: Contribution to journalArticlepeer-review

Abstract

A company granted a floating charge over all its assets. The floating charge is a universal hypothec, introduced from English law in 1961. It covers both moveables and immoveables. A floating charge is not a real right at first, but becomes one when it crystallises. According to s. 462(1) of the Companies Act 1985 it is competent under the law of Scotland for an incorporated company to grant such a floating charge "over all or any part of the property … which may from time to time be comprised in its property and undertaking". After granting the floating charge, the company contracted to sell a flat to the defendants. This was followed by delivery of the deed of conveyance (the disposition). A final stage before transfer of real rights in the property is complete is registration of the conveyance. The floating charge crystallised, however, before this formality was completed. The question for the courts was therefore whether the floating charge attached to the flat on crystallisation.

At first instance and on appeal the Scots courts determined that the transfer of the real rights in the property to the Thomsons had not been perfected and that therefore the flat fell within the scope of the floating charge when it crystallised. In the House of Lords, however, a different solution was retained. The "beneficial interest" in the property was found to have been transferred to the purchasers on disposition. The reference to property which may be comprised in a company's "property and undertaking" in s. 462(1) of the Companies Act was interpreted as meaning property in which the company had a beneficial interest. The floating charge did not, therefore, attach to the flat.

By invoking the idea that there is scope for some intermediate legal category between personal and real rights, involving the transfer of the beneficial interest in property, the decision has traumatised a certain section of the Scottish legal community - ever resistant to invasions from over the border. Although Lord Clyde stressed that "the approach taken by the appellants in this case does not seek to innovate upon the established principles of Scottish land law or conveyancing", the distinction drawn between legal and beneficial ownership mirrors the English law concepts constantly used in the law of property to distinguish between legal and equitable rights - a distinction not used in Scots law.
Original languageEnglish
Pages (from-to)401-414
JournalEuropean Review of Private Law
Volume4
Issue number4
Publication statusPublished - 1998

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