SECOND DIVISION, INNER HOUSE, COURT OF SESSION

Lord Justice Clerk Lord Menzies Lord Brodie

[2013] CSIH 108 P416/13 OPINION OF THE COURT delivered by LORD CARLOWAY, the LORD JUSTICE CLERK in the reclaiming motion by THE SCOTTISH ENVIRONMENT PROTECTION AGENCY AND OTHERS Reclaimers and Respondents; in the Note for Directions by THE JOINT LIQUIDATORS OF THE SCOTTISH COAL COMPANY LTD Respondents and Noters: in the petition of the directors of the Scottish Coal Company Ltd for an order to wind up the company _______________

Reclaimers - (1) SEPA: Lake QC; Brodies LLP

(2) Lord Advocate: Mure QC, Sheldon; Scottish Government Legal Directorate

(3) East Ayrshire and South Lanarkshire Councils: Howie QC, D J Edwards;

Ledingham Chalmers LLP

Respondents - (1) Scottish Coal Company: Sellar QC, Govier, R Anderson; HBJ Gately

(2) Advocate General: MacGregor; Office of the Advocate General

12 December 2013

The Directions
[1] By interlocutor dated 11 July 2013, the Lord Ordinary gave directions to the joint liquidators ("the liquidators") of The Scottish Coal Company Limited ("SCC") in the winding up of SCC, which had been ordered by the court on 29 April 2013. The Lord Ordinary directed, inter alia, that the liquidators have the power: first, to "abandon" certain heritable property located in Scotland and owned by SCC ("the first direction"); and, secondly, to "abandon (otherwise disclaim)" certain statutory licences, including licences granted under the Water Environment (Controlled Activities) Regulations 2005 and 2011 ("the CARs") and permits issued under the Pollution Prevention and Control (Scotland) Regulations 2000 and 2012 ("the PPCR"), presently held by SCC ("the second direction"). The directions have considerable practical significance. SCC own land in Ayrshire, Lanarkshire and Fife upon which open cast coal operations were conducted under CARs licenses and PPCR permits. The ongoing costs of complying with the regulatory regimes are about £500,000 per month. If the liquidators were required to comply with the statutory provisions (infra) to surrender the CARs licences, this would cost several million pounds. If the costs of compliance were to be treated as an expense of the liquidation, it is unlikely that SCC's creditors would receive any dividend upon dissolution.

[2] In respect of the first direction, the Lord Ordinary had first asked himself (para [21]) two questions: (1) can someone abandon the ownership of land; and (2) can there be ownerless land? During his consideration of the first question, he surmised that it was "not impossible in an essentially civilian system for an owner to abandon land" (para [22]) even if there were no authority to that effect. He did not consider that either the introduction of land registration or the abolition of feudal tenure affected the issue standing the specific statutory provisions (Land Registration (Scotland) Act 1979 s 2(4); Abolition of Feudal Tenure (Scotland) Act 2000 s 4). Although counsel for both the liquidators and SEPA submitted that it was impossible to have ownerless land, the Lord Ordinary did not consider (para [24]) that the authorities relied upon by them supported that proposition. One particular example identified by the Lord Ordinary was the Crown's waiver of bona vacantia (Macmillan: The Law of Bona Vacantia in Scotland pp 10-12). Another was the statutory right of the Crown to disclaim the land of a dissolved company (Companies Act 2006, s 1013(1)). Accordingly, the Lord Ordinary concluded (para [26]) that:

"... it may be possible for an owner to abandon land and circumstances may arise when, on a disclaimer by the Crown, land becomes ownerless ... If it is possible to abandon corporeal moveable property, it should be possible to abandon land".

Nevertheless, the Lord Ordinary considered that such abandonment would require to be regulated to prevent abandonment being used to avoid obligations.

[3] The Lord Ordinary explained that a liquidator had the same powers as a trustee in bankruptcy (Insolvency Act 1986, s 169(2)). Unlike in a liquidation (Smith v Lord Advocate 1978 SC 259), the property of a bankrupt vested in his trustee (Bankruptcy (Scotland) Act 1985, s 31). However, a trustee could choose not to adopt a contract, including a lease, thus leaving the other party to rank for damages (Goudy, Bankruptcy (4^th ed.) pp 282-3; Myles v City of Glasgow Bank (1879) 6 R 718). He could also "decline to take title or carry out obligations in relation to" heritage (Mitchell's Trs v Pearson (1834) 12 S 322; Marquis of Abercorn v Grieve (1835) 14 S 168; Mitchell's Tr v Galloway's Trs (1903) 5 F 612). The Lord Ordinary described (para [18]) the act of a trustee declining to adopt a contract or to "take up" heritable property as an "abandonment". Under reference to Air v Royal Bank of Scotland (1886) 13 R 734 and Whyte v Northern Heritable Securities Investment Co (1891) 18 R (HL) 37, the Lord Ordinary reasoned that the effect of this was to "reverse the vesting ... so that the right [of] property remains in the ownership of the bankrupt". This act freed the trustee of any liabilities in relation to the abandoned asset and allowed the trustee to realise and distribute the remainder of the estate.

[4] The Lord Ordinary considered that there was no reason in principle why a liquidator should not therefore also be entitled to decline to "take up" an asset (eg Asphaltic Limestone Concrete Co v Glasgow Corporation 1907 SC 463; Joint Administrators of Rangers Football Club, Noters 2012 SLT 599; Crown Estate Commissioners v Liquidators of Highland Engineering 1975 SLT 58; P & O Property Holdings v City of Glasgow Council 2000 SLT 444). If a liquidator declined to "take up" land, it would remain the property of the company, until that company was dissolved. It would not form part of the liquidator's "patrimony". It would remain as a "mummified patrimony" with nobody entitled to exercise control over it during the winding up.

[5] Notwithstanding this generality, the Lord Ordinary held (para [34]) that, where a company's use of land was governed by statutory permits, a liquidator's ability to "disclaim" the land (in the Lord Ordinary's sense of declining to include it in the creditors' patrimony or taking steps to terminate ownership) would depend upon the terms of the relevant statutory provisions and permits. Thus, whether the liquidators had power to "disclaim" the land in question depended largely upon the answer to the questions posed by the request for the second direction.

[6] The CARs provide (reg 2) that a liquidator is a "responsible person" for the purposes of the observance of licences, including the conditions for surrender of the licence (reg 24). The Lord Ordinary held that a statutory licence was an interest "arising out of, or incidental to, property" and therefore within a liquidator's control (Insolvency Act 1986, ss 144 and 436). There were two possible interpretations of the CARs in relation to whether a liquidator was bound by the statutory provisions for the surrender of a licence. On a broad interpretation, a liquidator was precluded from surrendering the licence other than by the methods specified in the CARs (Re Mineral Resources [1999] BCC 422). On a narrow interpretation, termination could be achieved by other methods, as a consequence of "external statutory force" (In re Celtic Extraction [2001] 1 Ch 475, Morritt LJ at para 37). Whilst the Lord Ordinary considered that there were strong policy factors in favour of the broad interpretation, and that it reflected the natural meaning of the provisions, such an interpretation would remove a liquidator's right to disclaim property to the extent of licences covered by the CARs.

[7] If a liquidator could not disclaim a licence, it would have the effect of creating a new liquidation expense, which would be a modification of a reserved matter (Scotland Act 1998, sch 5, para C2). It would not create a new category of preferential debt (Insolvency Act 1986, s 386 and Sch 6), but it would create an obligation with priority over such debts and it could alter the order of priority in liquidation expenses (Insolvency (Scotland) Rules 1986, rule 4.67). Thus, the Lord Ordinary reasoned, the CARs fell outside the legislative competence of the Scottish Parliament. Accordingly, he held that the narrow interpretation of the CARs must apply in order to bring the relevant provisions within devolved competence (Scotland Act 1998, s 101; cf Martin v Most 2010 SC (UKSC) 40). The Lord Ordinary concluded that, applying such an interpretation, the liquidators could disclaim the heritable property covered by the first direction and release themselves from the obligations under the CARs licences covered by the second direction.

Submissions
Scottish Environmental Protection Agency ("SEPA")
First direction
[8] SEPA contended that it was necessary to consider exactly what was meant by the terms "abandon" and "disclaim" where they were used in the directions. The liquidators claimed that the effect of the exercise of a power to abandon or disclaim would be that the land would vest automatically in the Crown as bona vacantia. However, a liquidator had the same powers as a trustee in sequestration (Insolvency Act 1986, s 169(2)). A trustee in sequestration had no power to render property bona vacantia. Therefore, a liquidator had no such power.

[9] In order to establish the scope of a liquidator's powers, it was necessary to establish the scope of the powers of a trustee. Section 169 of the 1986 Act was not a "deeming provision"; that is it did not deem a liquidator to be a trustee in sequestration. Its purpose was to confer powers; not to disapply the differences in vesting as between trustees and liquidators. It applied to a winding up by the court, but a company would not necessarily be insolvent in such a winding up if a liquidator could rid a company of property that carried the liabilities of a statutory licence, any company could do so voluntarily and distribute the value of any remaining assets to its creditors (including the shareholders).

[10] Although some authorities referred to the "abandonment" of property or contractual rights, the word had never been used in the sense that property was rendered bona vacantia. Rather, it had been used to describe situations where a trustee: (1) refused to adopt a contract or to take title to property by which he would incur personal liability (non-adoption); (2) permitted repudiation by non-performance of a contract, leaving the creditor to rank for any damages; or (3) refused to deal with or to realise the property of the bankrupt on the basis that it would be uneconomical to do so.

[11] A bankrupt's property and his contractual rights vested in the trustee (Bankruptcy (Scotland) Act 1985, s 31); Myles v City of Glasgow Bank (1879) 6 R 718, LP (Inglis) at 725). A trustee had power to "disclaim" a contract, but that disclaimer did not terminate the contract. The trustee could choose to perform the bankrupt's obligations and benefit from the other party's obligations (Mitchell's Tr v Galloway's Trs (1903) 5 F 612), Lord Adam at 617). Where the trustee "disclaimed" (that is chose not to implement) a contract, the other party's remedy was limited to one of damages, as the court would not grant a decree for specific implement against a trustee. There was no change in rights; only in remedies.

[12] Contracts imposing ongoing liabilities, including leases, were not terminated automatically by bankruptcy (Bidoulac v Sinclair's Trs (1889) 17 R 144, LP (Inglis) at 147). A lease could not be terminated unilaterally by a trustee. As a consequence, the liability to pay rent would continue until the lease was terminated by the landlord. The landlord would then lose the right to enforce any future obligations upon the tenant (Bidoulac v Sinclair's Trs (supra), Lord Shand at 149). "Abandonment" of a lease by the trustee in those circumstances merely indicated that he refused to perform the obligations under it, giving rise to a claim for damages at the instance of the landlord. If the lease were not terminated, the bankrupt's liability for rent would continue to accrue until the landlord, not the trustee, terminated it.

[13] Where a trustee refused to deal with certain property or to enforce apparent rights, these reverted to the bankrupt by virtue of his "radical right" (Air v Royal Bank of Scotland (1886) 13 R 734, LP (Inglis) at 736). This might occur when a bankrupt had a contractual claim, which a trustee decided not to vindicate, but which the bankrupt wished to pursue. Meantime, the rights were not terminated. Notwithstanding liquidation, the land held by SCC continued to be owned by the company and the liabilities arising from that ownership could be enforced.

[14] The position of a liquidator in relation to contracts and heritable property was the same as that of a trustee. He could elect to perform a contract, in which case he (as distinct from the company) would become personally liable (Asphaltic Limestone Concrete Co v Glasgow Corporation 1907 SC 463, Lord McLaren at 471-2). The obligation was on the liquidator to intimate adoption, otherwise the contract would be held to have been "abandoned" in the sense of not being performed (Crown Estate Commissioners v Liquidators of Highland Engineering 1975 SLT 58, Lord Keith at 61). It was not open to the liquidator to terminate, "disclaim" or "disaffirm" a contract (Joint Administrators of Rangers Football Club, Noters 2012 SLT 599, Lord Hodge at para [46]).

[15] The Lord Ordinary had dealt with (paras [27]-[28]) the "abandonment" of property in the third sense (supra) of a liquidator declining to deal with or to realise an asset, whereby it remained with the company. The Lord Ordinary had been correct to say that a liquidator could "disclaim land", in the limited sense of declining to deal with it, but he had fallen into error when he had stated that a liquidator could disclaim "by taking steps to terminate the company's ownership of the land" (para [34]). There was no authority for such a proposition, as the Lord Ordinary himself acknowledged (para [22]). The Lord Ordinary recognised the potential for abuse of a power to abandon, such as to "escape dues on the property" (ibid).

[16] An analysis based on dual patrimonies was of no assistance and ought to be avoided. The theory that a trustee had two distinct patrimonies, thus protecting any trust patrimony from the consequences of a bankrupt's personal insolvency, had no application in the context of liquidation, where no property vested in the liquidator. All the property remained owned by the company. There was no "liquidator's patrimony", as such. A liquidator could not remove a class of liabilities from a company so that they no longer ranked in the liquidation. All the creditors were entitled to rank on the single patrimony of the company. The pari passu principle was fundamental but not inviolate; hence the existence of secured, preferential and postponed creditors. Similarly, ongoing liabilities under, for example, a lease did not give rise to any problem under the pari passu principle.

Second direction
[17] There were three propositions in connection with whether or not a liquidator had power to "abandon" or otherwise "disclaim" a statutory licence. First, there was no power to "disclaim" in the sense that a liquidator could terminate a licence unilaterally and without reference to the statutory surrender procedures. Secondly, esto a liquidator had a general power to disclaim property, the scheme laid out in the CARs created a form of licence that could not be renounced in that way, even if other licences could be so renounced. Thirdly, it had been within the legislative competence of the Scottish Parliament to promulgate the CARs with that effect.

[18] As to the first proposition, a liquidator was the agent of the company with power to conduct the business of the company. A liquidator had the power to instigate the statutory procedures for the surrender of a CARs licence. A liquidator had no power to terminate rights of third parties against the company. A liquidator had the power to refuse to deal with, or to adopt, property only in order to avoid personal liability.

[19] The power of a trustee, and therefore also of a liquidator, to refuse to adopt the property of the bankrupt or company was tied up with mutuality of contractual obligations. A trustee or liquidator did not have to render himself personally liable under a contract. The corollary was that he could not enforce the obligations under that contract against the other party. That scheme did not apply to statutory licences, which were a matter of public, rather than private, law. The statutory licence scheme was intended to protect the public from adverse environmental consequences. It did not allow for any trade-off of rights and obligations as between private parties. The scheme was based on a prohibition of certain activities, except where a permit or licence was obtained. It had none of the features of mutuality that would give rise to a trustee's or liquidator's power to decline to perform the licensee's obligations and to accept the consequences of not being able to enforce rights against another.

[20] On the second proposition, the CARs provided that the "responsible person" had to apply to SEPA to surrender a licence. SEPA had to grant or refuse such an application (reg 27). The CARs provided that certain matters required to be considered by SEPA (sch 4), in accordance with a number of EU Directives, including the Water Framework Directive (2000/60/EC) to which the CARs gave effect. Those provisions were designed to ensure that, when a licence was to come to an end and the licensed works were to cease, the land would be left in a state that complied with the treaty obligations of the United Kingdom. They were critical as a means of ensuring that the objectives of the EU Directives were complied with in Scotland. The Water Framework Directive set out 'end result' obligations (art 4) to be achieved by member states. It was for member states to decide how to implement the Directive, but those objectives had to be achieved.

[21] The "responsible person" had to comply with the licence obligations (reg 8). The definition of "responsible person" included trustees and liquidators (reg 2(1)). Where the licenced activities ceased on liquidation, it was the liquidator who had to apply for surrender of the licence (reg 27). If conditions of surrender were imposed by SEPA, it was the liquidator who had to fulfil them. It could not have been the intention or effect of the CARs that, once a liquidator was appointed, a licence could be abandoned at will rather than in accordance with the statutory surrender procedures.

[22] There were a number of factors indicating that it ought not to be possible for a statutory licence to be terminated at the hand of a liquidator. First, there was the clear legislative intent to establish a scheme for the surrender of licences, thus enabling the requirements of the EU Directives to be met. Secondly, the compulsory regulatory regime would become a voluntary one if a liquidator were subject to the regulations only until he no longer wished to be responsible for the licences and disclaimed them. Thirdly, it was more consistent with securing the objectives set out in the EU Directives, even if they could not be guaranteed in cases of absolute insolvency. Fourthly, the CARs were intended specifically to implement the Framework Directive (see Explanatory Note to the CARs) including the principle that "the polluter should pay" (recitals 1, 11, 19). There was a legal obligation on member states and the courts to seek to give effect, so far as possible, to EU Directives in the application of domestic provisions (Pfeiffer v Deutsches Rotes Kreuz [2005] ICR 1307, at paras 106-115). Finally, if there were any dubiety about the powers of a liquidator to disclaim property, the construction of the CARs that was more consistent with compliance with the EU obligations was to be preferred.

[23] The approach of Neuberger J in Re Mineral Resources [1999] BCC 422 ought to be followed, rather than that of the Court of Appeal in In re Celtic Extraction [2001] Ch 475. The public interest in the expeditious winding up of companies and the recovery of sums by unsecured creditors had to yield to the countervailing interest of environmental protection. A liquidation would not be prolonged indefinitely by this approach. A liquidator could seek dissolution of the company once funds were exhausted. The costs of completing the works in order to achieve surrender of the licences would be expenses in the liquidation and would therefore take priority. If there were potentially insufficient funds available to meet a liquidator's fees, an application could be made to the court for a determination of priorities (Insolvency Act 1986, s 156). It did not matter whether the licences fell within the statutory definition of property in the liquidation (ibid s 436) as the liquidators had power to deal with the licences anyway as agents of the company.

[24] Despite the sweeping reference to Scots common law being the same as that in England by Morritt LJ in In re Celtic Extraction (supra, at para 38), there was no indication of the basis upon which such a statement might have been made. The Court of Appeal had misunderstood (at para 39) the meaning of the "polluter pays" principle (cf EU Dir., recital 11). The expression meant that the cost of environmental measures should fall upon the provider of any goods and services, by factoring them into the price charged. The money available for distribution to the creditors of SCC included funds that should be expended on the requirements of the environmental legislation. It was entirely consistent with the "polluter pays" principle that these funds should be used to address environmental concerns. Creditors of companies involved in potentially polluting work had to accept that environmental obligations took priority (Re Mineral Resources (supra), Neuberger J at 438). It was the antithesis of the "polluter pays" principle that the government or the public had to pay instead. On the question of whether there could be abandonment of land in Scotland by an English liquidator, the application in Firmin v Aardvark TMC [2013] EWHC 1774 (Ch) had been unopposed and SEPA had had no notice of it. The court had proceeded on "advice" that it was competent but the nature and provenance of that advice was unclear.

[25] In relation to the third proposition, the CARs contained a scheme that defined the birth, life and death of those licences. It was a new regime in terms of which a liquidator could not unilaterally cancel licences. It did not create a new preferential debt nor any form of preferential charge. It used the existing machinery of insolvency. It created no more than a liability on the part of a liquidator. It was the insolvency regime that determined how that liability was to be dealt with and its priority as a liquidation expense (Insolvency (Scotland) Rules 1986, rule 4.66).

[26] The test for competency of devolved legislation was the same, whether it was primary or secondary legislation at issue (Scotland Act 1998, s 29). Such legislation could not modify or confer a power to modify the law on a reserved matters (ibid sch 4, para 2(1)). The CARs related only to activities carried on in Scotland and applied only to functions in or as regards Scotland. They did not form part of the law of any country other than Scotland. To the extent that they had any effect on the exercise of powers thought to be contained in English law, or reserved powers, any such effect did not make them part of the law of England (ibid s 29(2)(a)).

[27] In order to determine whether the CARs related to reserved matters (s 29(2)(b)), it was necessary to consider the purpose of the provision in question (s 29(3)) having regard (amongst other things) to its effect in the circumstances. The Lord Ordinary had placed too great a weight on "effect", to the prejudice of determining the "purpose".

[28] It was not sufficient to demonstrate that the provision had an effect on a reserved matter; there had to be more than a loose or consequential connection (Martin v Most 2010 SC (UKSC) 40, Lord Walker at para [49], approved in Imperial Tobacco v Scottish Ministers 2013 SC (UKSC) 153, Lord Hope at para [16]). What was relevant was the core of the matter dealt with. Legislation was not invalidated where it incidentally impacted upon a reserved matter (Imperial Tobacco v Scottish Ministers (supra), Lord Hope at para [13], citing Gallagher v Lynn [1937] AC 863, Lord Atkin at 870). Whatever the test adopted, the CARs were intended to address environmental liability in implementation of the EU Directives (Martin v Most (supra), Lord Hope at para [25]; Water Environment and Water Services (Scotland) Act 2003; Explanatory Note to the CARs).

[29] It was relevant to determine whether or not the CARs impacted upon the reserved matter, that is the "general legal effect of" winding up, or upon the exception in respect of the "process" of winding up (Scotland Act 1998, sch 5, para C2). The exercise of powers of "disaffirmation" or "disclaimer" fell more naturally under the latter heading. Personal bankruptcy was not a reserved matter. Given that the liquidators' powers were determined by reference to the powers of a trustee, it would be anomalous if the Scottish Parliament were prevented from altering the powers of a trustee, if such a measure also altered the powers of a liquidator. It was not enough for the liquidators to point to a change in outcome. There had to be a change in the law, such as an amendment or repeal (sch 4, para 2(2), Imperial Tobacco v Scottish Ministers (supra), Lord Hope at para [44]). In this case, the Insolvency Act and the Insolvency Rules were not affected. Where no rule was modified, it was difficult to identify the reserved matter that was the subject of any modification.

[30] Section 29 should be applied to the CARs so as to favour the competence of the Scottish Parliament (Martin v Most (supra), Lord Hope at paras [34] and [38]). It was legitimate to look at the provisions of regulations 2 and 27 insofar as they regulated, collectively, the surrender of licences. The purpose of the CARs was to secure that the objectives of the EU Directives were met by providing a means of bringing about the orderly end of works and ensuring that environmental concerns were addressed by a responsible person in control of the activities. The effect upon a liquidator was that he could not abandon a licence unilaterally, but that was not the purpose of the provision. It was necessary to disable any power in a liquidator to circumvent environmental controls by unilateral abandonment (Attorney General v National Assembly for Wales Commission [2013] 1 AC 792, Lord Neuberger at paras 49 and 54, Lord Hope at para 82). Insofar as the ordinary powers of a liquidator were disapplied, that was not significant in the context of the CARs and their purpose as a whole. The CARs were not concerned with reform of the insolvency regime but with environmental matters. The Lord Ordinary had thus been wrong to conclude that the broad interpretation of the CARs, for which the SEPA contended, would be outwith the legislative competence of the Scottish Parliament.

Lord Advocate
First Direction
[31] The Lord Advocate agreed with SEPA's submissions. The Lord Ordinary had erred in making the first direction. The liquidators had no power to abandon the land so as to make it vest in the Crown as bona vacantia. A trustee in sequestration lacked such a power and so, too, did a liquidator who had the same powers (1986 Act, s 169). The Lord Ordinary had identified no basis for a liquidator having the power to terminate a company's ownership of land. The issues of bona vacantia and ownerless land in Scots law did not assist in answering the question of whether a liquidator had power to "disclaim" land.

[32] The Lord Ordinary had been correct (para [30]) not to give any weight to the argument that a Scottish liquidator necessarily had the same powers as a liquidator in England. Section 169 of the 1986 Act did not say that a liquidator in Scotland had the same powers as a liquidator in England. The powers of a liquidator in Scotland depended upon those of a trustee in sequestration. The matter of personal insolvency was not reserved to the United Kingdom Parliament. There was no imperative for the two jurisdictions to be identical and it would be surprising if they were.

[33] The pari passu principle was considerably attenuated in both English and Scots law. In essence, the principle required that those in the same position in law ranked equally inter se, but that was subject to a range of exceptions and persisted only insofar as assets were available. The existence of secured and preferential creditors, rights of set-off in insolvency, deferred debts (1986 Act, ss 213 and 214), post-liquidation debts as expenses, preferences by virtue of liens at common law and of unpaid sellers under statute (Sale of Goods Act 1979, ss 41 - 46) were notable examples. In practical terms, some creditors, such as those with ongoing contracts providing essential services or goods to a company, had sufficient leverage to ensure that they were paid. The pari passu principle did not justify a power of disclaimer being vested in a Scottish liquidator.

Second Direction
[34] The Lord Ordinary had fallen into error in giving the second direction. The liquidators lacked the requisite power to "abandon" the statutory licences; in the sense of "disclaiming" them unilaterally without reference to the statutory surrender procedures. The CARs created what was a new and self-contained statutory scheme of prohibitions and enforcement; including the creation of criminal offences. It authorised acts that were otherwise prohibited (reg 4). The scheme of the CARs and its aims did not fit the same model as a private contract for profit. The CARs existed to secure environmental advantages for society through the achievement of EU environmental objectives.

[35] The "polluter pays" principle (Treaty on the functioning of the EU ("TFEU"), art 191; EU Directive 2000/60, recital 11) provided a sound reason for prohibiting unilateral termination. The principle required that the costs of pollution should be internalised, through pricing mechanisms, so that they became costs of any operations causing environmental degradation (Raffinerie Meditterranee v Ministero dello Svillupo Economico [2010] 3 CMLR 9). Generally, the principle encouraged producers to minimise their pollution, as the cheaper alternative to subsequent remediation. In that sense, it operated as a deterrent. It was important to avoid a lacuna in the domestic regime for implementation of the EU Directives (cf Tubbs v Futurity Investments [1998] NZLR 471 at 479), which would be the result of allowing liquidators to terminate licences unilaterally.

[36] The Lord Ordinary had failed to have regard to the context of the CARs as a whole. A key feature was the requirement to identify a responsible person to ensure the effective operation and enforcement of the regulations. The rationale for the express inclusion of liquidators, executors and trustees in sequestration as responsible persons was intended to avoid the potential for debate over the consequences of liquidation, death or sequestration respectively. Those issues were all addressed on the face of the CARs.

[37] The court had to turn its attention to the rules in the Scotland Act 1998 (Imperial Tobacco v Scottish Ministers (supra), Lord Hope at para [13]). The constitutional settlement had to be coherent, stable and workable (ibid, para 15). Good legislation should not be lost by considering its effect rather than its purpose (Martin v Most (supra), Lord Hope at para [12]; Hansard (HL), 21 July 1998, Lord Sewell at col 819).

[38] The CARs did not form part of the law of England (1998 Act, s 29(2)(a)). Many elements of Scots private law affected persons beyond Scotland in respect of their rights or obligations in Scotland, without being part of the law of any foreign jurisdiction. There was nothing to suggest that the CARs purported to regulate any jurisdiction other than Scotland.

[39] The Lord Ordinary had erred in failing to consider the purpose of the CARs in the context of the existing law and in considering only their immediate effect on liquidators (1998 Act, s 29(2)(b); Martin v Most (supra); Imperial Tobacco v Scottish Ministers (supra)). In relation to purpose, it was too restrictive to consider only the direct and immediate purpose of the CARs. That purpose was, however, to implement EU law in a way that ensured that the EU objectives were met. The CARs did this by contemplating the death, sequestration, or liquidation of responsible persons.

[40] In relation to effect, the CARs did have some effect upon liquidators, insofar as they might affect the funds available for distribution, but any such effect was minor and ancillary to the purpose. The Scottish Government and Scottish Parliament had made provision for the protection of the environment, as a devolved matter, for over a decade. Such provisions may, no doubt, have had diverse financial implications for certain sections of society. If it were correct to disregard the purpose of those provisions and to consider only their effect, the court would have to revisit a great number of environmental enactments.

[41] Section 29 and schedule 4 of the Scotland Act 1998 were intended to protect certain laws on reserved matters against modification. It was not "insolvency" that was a reserved matter, but the specific items listed under that heading (Scotland Act 1998, sch 5, para C2). Whilst the nature and ranking of preferred or preferential debts was reserved, there was no attempt by the CARs to alter the law on these matters. They did not alter the order of ranking of debts (Insolvency (Scotland) Rules 1986, rule 4.67). They did not alter the nature or categories of liquidation expenses. They impacted, as did many things, only the funds that were available for distribution. It was not enough that the CARs altered the quantum of liquidation expenses. That was simply a result of the operation of rule 4.67. It was unnecessary to call upon the exceptions to reserved matters (para 2(3) and 3(1), sch 4, 1998 Act) as that point had not been reached.

Local Authorities
[42] At the outset, the local authorities expressly departed from the argument on competency advanced before the Lord Ordinary.

First Direction
[43] There may be distinctions to be drawn between situations in which a liquidator was able to "disclaim" a contract, by being in material breach and allowing the other party to rank in damages, and those where disclaimer of the land itself was desired (eg where remediation costs were payable by the owner of land for the time being under the contaminated land regime; Environmental Protection Act 1990, s 78F). If it were possible to disclaim land, in the sense of abandoning ownership, liquidators would no doubt seek to free themselves from any such liabilities, where it appeared to be worthwhile to do so. Similarly, liabilities concentrated upon a particular geographical area, such as lagoons and voids in open cast coal mining sites, might be avoided by disclaimer of a particular area or portion of the land affected. Such action could be taken by the liquidators of solvent, as well as insolvent, companies.

[44] The local authorities associated themselves with the submissions of SEPA and the Lord Advocate. It was enough for the success of the reclaiming motion on the first direction that the court adopted a straightforward approach on the central issue that a liquidator had only such power as may be exercised by a trustee in sequestration (section 169(2), Insolvency Act 1986). If the power to abandon land existed, that could be the only source of that power.

[45] There was no case discernible from the textbooks in which a liquidator was seen to abandon title to land. That factor was not insignificant given the length of time that the courts have dealt with the liquidation of companies. Neither the textbooks nor the cases gave any clear support for the existence of any principle of abandonment of title, as opposed to repudiation of contractual obligations by a trustee (Wilton, Company Liquidation Law and Practice, (1922), pp 56 and 67; Goudy, Bankruptcy (4^th ed.), pp 282 - 283), as could be read across into liquidation by virtue of section 169 of the 1986 Act. The "abandonment" of a contract amounted to a material breach by a trustee or liquidator, which afforded a ranking in damages to the other party. It did not involve abandonment of the title to any asset. The only speciality in the case of a material breach by a trustee or liquidator was that the other party could not seek specific implement.

[46] The Lord Ordinary had noted (para [22]) that there was no precedent for the abandonment of land and that, if it existed, such a power could easily be abused. There was no known procedure for regulating such abandonment in Scots law, as the Lord Ordinary suggested would be necessary in circumstances other than insolvency. The absence of a procedure indicated that the ability to abandon land identified by the Lord Ordinary was one that nobody possessed.

[47] The Lord Ordinary's finding that there may be ownerless land in Scotland made him more inclined to find that the liquidators were entitled to disclaim land. Such an argument was not well founded. It was not possible to have ownerless land in Scotland. All land had to be owned by somebody, even if it was owned by the Crown. The abandonment of land had been conceptually impossible under feudalism (Shetland Salmon Farmers Association v Crown Estate Commissioners 1991 SLT 166, Lord Ross at 172, citing Rankine, Landownership (4^th ed), p 251). If land were not disponed, it remained in the ownership of the Crown under the jus coronae (Shetland Salmon Farmers Association v Crown Estate Commissioners (supra), Lord Ross at 174). It followed that to say that abandoned land was ownerless would be to say that it did not form part of Scotland. Since it would be absurd to suggest that disclaimed land thereby ceased to be in Scotland, it followed that it could not be ownerless.

[48] The same result followed from an application of the principle quod nullius est fit domini regis. The maxim applied to moveables and land alike (Lord Advocate v University of Aberdeen 1963 SC 533, Lord Patrick at 554, Lord Mackintosh at 558; Shetland Salmon Farmers Association v Crown Estate Commissioners (supra), Lord Ross at 174). Thus, abandoned heritage would become res nullius and fall instantly to the Crown (Shetland Salmon Farmers Association v Crown Estate Commissioners (supra), Lord McCluskey at 187). The Crown right to res nullius was not feudal but part of the prerogative right (jus coronae) to the territory of Scotland (Shetland Salmon Farmers Association v Crown Estate Commissioners (supra), Lord Ross at 173, citing Lord Advocate v Clyde Navigation Trs (1891) 19 R 174, Lord Young at 183). Application of that principle did not depend on a Crown choice. The fact that everything not otherwise owned fell to the Crown jure coronae meant that the Crown could not waive or disclaim it (cf Macmillan, The Law of Bona Vacantia, pp 10 - 12). Any such disclaimer would be circular.

[49] The Lord Ordinary had taken the view that the statutory provisions, regarding the property of dissolved companies falling to the Crown as bona vacantia (Companies Act 2006, s 1012 et seq), had to involve ownerless property in order to be given effect. The purpose of those provisions was difficult to determine. They did not equate readily with Scots common law. The nature of the relationship between the vesting of property in the Crown upon dissolution, and the effect of a subsequent disclaimer of the rights of the dissolved company, was not clear. It was to be presumed that section 1020 of the Companies Act 2006, which operated only if the company held property immediately before dissolution, was intended to confer some benefit on the Crown that it did not otherwise have at common law. The effect of the statutory provisions could be avoided if, under the ordinary rules of property law, property could be thrust upon the Crown prior to dissolution and the Crown was unable to disclaim in accordance with the 2006 Act. The Crown would be able to disclaim even if this might result in a "boomerang effect" (Scmlla Properties v Gesso Properties (BVI) [1995] BCC 793).

[50] The Lord Ordinary had not put forward any basis upon which a liquidator had the power to disclaim or terminate a company's ownership of land. He had founded (para [33]) upon certain additional policy factors, but the court was not in a position to pass judgment on the potential effects of a direction that a power to disclaim existed. Even if it did, it was not apparent that the liquidators had power to disclaim property at a stage in the liquidation when there were assets available from which to meet the company's liabilities (cf dissolution, when, normally, there were none). The effect of a power of disclaimer on environmental agencies was, however, of relevance. If it was accepted that the exercise of a power of disclaimer obstructed the objectives of EU environmental law, such a power could not be allowed. Any power of disclaimer would be barred in favour of compliance with EU obligations.

[51] The straightforward solution was provided by section 169(2) of the 1986 Act, as supported by policy issues. There was no ground for disclaimer in this case and it was not open to the liquidators to disclaim in the sense of ridding the company of ownership of property. It was not possible to lose or abandon ownership of land by doing nothing, that is through lapse of time, as real rights in land were imprescriptible (Prescription and Limitation (Scotland) Act 1973, sch 3) without action by another party. The third party would require to occupy the property for the prescriptive period, on the basis of an a non domino disposition habile to include the property. Those circumstances were unlikely to arise in the present case. In any event, the position regarding the recording of such deeds was uncertain.

Second direction

[52] The local authorities adopted the submissions of SEPA and the Lord Advocate upon the proper construction of the 1998 Act and the legislative competence of the CARs. The Lord Ordinary had been correct to apply the wider interpretation of the CARs and to reject the approach in In re Celtic Extraction (supra). The CARs did not fall foul of the limitations on legislative competence. The Lord Ordinary had erred in adopting the narrow interpretation of the CARs in order to bring them within competence, as he had conceived to be necessary (1998 Act, s 101). That was sufficient to deal with the second direction.

[53] It was to be presumed that the United Kingdom Parliament, in passing the Scotland Act 1998, intended the Scottish Parliament to have powers to enact subsidiary legislation for the purposes of complying with EU law in areas of devolved competence. If regulation 27 of the CARs was necessary to implement EU obligations, but would otherwise fall outwith devolved competence, the question of whether the EU obligations could be rendered fully effective in a manner that fell within devolved competence had to be addressed. It was not sufficient to say that, if EU obligations were not met, then the issue would be remedied by the UK Parliament in due course. The court had to deal with the problem in a way that complied with EU law (Melki [2011] 3 CMLR 45, para 40; Vodafone 2 v Revenue & Customs Commissioners [2010] 2 WLR 288).

[54] It was necessary to provide remedies in domestic law that were sufficient to secure protection in the areas covered by EU law (TFEU, arts 4(3) and 19(1)). Thus, questions of statutory construction had to be answered in a manner that would fulfil EU obligations (Amministrazione delle Finanze dello Stato v Simmenthal [1978] 3 CMLR 263, para 14). The appropriate way in which to resolve any conflict was to read into section 29 of the 1998 Act a saving provision, such as "save to the extent that it is necessary so to legislate in order to achieve the full effectiveness of EU law" (Pfeiffer v Deutsches Rotes Kreuz (supra). In other words, the proper construction of the 1998 Act allowed for the implication of those words, of necessity, to meet the demands of the supremacy of EU law (Imperial Tobacco v Lord Advocate (supra); Martin v Most (supra)). The court was not entitled to wait for matters to be addressed by the legislature. It had to ensure that the operation of section 29 of the 1998 Act did not obstruct the workings of EU law.

The liquidators
[55] The liquidators accepted that their Note raised points of difficulty and novelty but these were practical matters upon which the court's guidance was required. The liquidators had to be clear about their personal responsibilities, duties and liabilities, but they also represented SCC's creditors. It was their function to attempt to assist the court. It was unfortunate that, on the liquidators' analysis, the financial burden fell on the taxpayer, but it was in the nature of insolvency that there would be insufficient funds to meet all liabilities. Ultimately, the liquidation proceeded under the authority of the court and the liquidators were not attempting to evade SCC's obligations. If the court did not support the liquidators' interpretation of section 169(2) of the 1986 Act, then that was an end of the matter. The remaining issues could not affect the outcome of the application. In that case, however, the United Kingdom insolvency regime would contain significant and fundamental anomalies. The Scottish system for the winding up of any company subject to a CARs licence would be unworkable.

The first direction
[56] The Lord Ordinary had been correct in his reasoning and, where his reasoning was not spelled out, there were matters that were implicit. There had been significant pressure of time placed upon the Lord Ordinary and it was understandable that his reasoning was not always fully articulated. Furthermore, he had not had the benefit of Re the Nortel Companies [2013] 3 WLR 504. The application was not periled on the liquidators having the power to cause land to become bona vacantia and so vested in the Crown. There was at least one other plausible solution, commonly termed "the mothballed patrimony". If the court did not see merit in what the Lord Ordinary called the "mummified patrimony", the court should so direct.

[57] Whether or not Scots law permitted ownerless land was not a matter of concern to the liquidators. It was common ground that: (a) there was no direct authority on the power of a Scottish liquidator to disclaim land; and (b) there was no statutory provision to that effect equivalent to section 178 of the 1986. There were a number of clear reasons for this. First, until 2004, land was held feudally and, as a matter of legal theory, was not owned absolutely. Secondly, feudal burdens had become less important in the twentieth century. Thirdly, only recently had environmental obligations become significant. Previously, land might have had no value, but it would not have had a negative value caused by ongoing obligations.

[58] Section 169(2) dated from 1862 (Companies Act 1862, s 171) and section 178 from 1929 (Companies Act 1929, s 267). It was again common ground that, where it had been said, in English cases, that a Scottish liquidator had a common law power equivalent to section 178 (In re Celtic Extraction (supra)), there had been no explanation for that statement and no opinion on Scots law had been cited. However, that proposition was derived from the Scottish Law Commission (Memorandum No. 16: Insolvency, Bankruptcy and Liquidation in Scotland (1971)).

[59] The only source of any power to disclaim Scottish land was section 169(2); indirectly, through the application of the powers of a Scottish trustee. A liquidator's basic powers, however, were conferred by section 167 and schedule 4 of the 1986 Act. They included the power to sell property. Overall, a liquidator's function was to ingather property and to distribute it to creditors, with any surplus going to the shareholders (1986 Act, s 143). In that regard, there was no distinction between Scottish and English liquidations. Section 169(2) was a residual, sweeping power which included, by way of example, the ability: to make the application itself (Liquidator of Upper Clyde Shipbuilders 1975 SLT 39); to disclaim a contract; and to sell property free of inhibition (see Bankruptcy (Scotland) Act 1985, s 31(4)). A literal reading of section 169(2) was unworkable, particularly in the context of disclaimer, due to the difference between liquidators and trustees as regards vesting (see infra). It had to operate as a legal fiction or "deeming provision" (see eg Marshall v Kerr [1995] 1 AC 148, Lord Browne-Wilkinson at 164).

[60] A trustee had the power to disclaim a contract, including a lease. The vesting of contracts with onerous liabilities was not something that a trustee could avoid. Whilst he could, in effect, decline the vesting (Air v Royal Bank of Scotland (supra), Lord Shand at 737) or "disclaim" the contract (Goudy, Bankruptcy (4^th ed.), p 282), the right to future performance of the contract, subject to the correlative obligations, must have vested before it could be disclaimed. So much was consistent with the general scheme of bankruptcy, whereby the whole estate vested in the trustee subject to his power to disclaim, decline or reverse the vesting in the case of an onerous contract.

[61] The crucial distinction was that, as a consequence of the bankruptcy and the statutory vesting, the court would not enforce the primary right of the other contracting party to demand performance, leaving only the secondary right to damages. If a trustee disclaimed a tenant's interest in a lease, for example, the landlord's right or remedy was a claim for damages in the sequestration. The lease otherwise came to an end. Similarly, a feu could not go on indefinitely at the feudal superior's choice. The power of disclaimer was a necessary element of a rational insolvency process. The principle applied, equally, to feus, leases or contracts (see eg Anderson v William Hamilton & Co (1875) 2 R 355) and amounted to termination, in the sense that ongoing obligations could not be enforced against either the bankrupt or the trustee, and therefore the trust or sequestrated estate.

[62] The effect of exercise of the power to disclaim a right of the bankrupt was to terminate the trustee's ownership of the asset (Bidoulac v Sinclair's Trs (supra), LP (Inglis) at 148, Lord Shand at 149). The complication of feudal tenure having disappeared, there was no reason in principle why a trustee should not abandon land as well as moveables or "intangibles" back to the bankrupt. The power to disclaim gave effect to two fundamental principles of the Scottish insolvency processes. First, all unsecured creditors rank pari passu as at the date of sequestration. Secondly, protracted proceedings are to be avoided. Taken together, these principles allow for a "clean break". The circumstances were different in liquidation, but the "clean break" principle was common to both.

[63] Section 31 of the 1985 Act vested the whole estate of the bankrupt in the trustee subject to certain exceptions. That was not the effect of liquidation, but the difference in vesting did not matter insofar as the trustee's powers could be applied to liquidators by analogy (Crown Estate Commissioners v Liquidators of Highland Engineering (supra), Lord Keith at 59; Asphaltic Limestone Concrete Co v Glasgow Corporation (supra), Lord Ardwall at 470). There was statutory provision for assets to vest in a liquidator (1986 Act, s 145) but it was not known whether this had ever been used. The effect of liquidation was to create a statutory trust over the property, assets, estate of the company as at the liquidation date (Smith v Lord Advocate 1978 SC 259; Ayerst v C & K Construction [1976] AC 167, Lord Diplock at 177 and 180). A statutory trust was created in favour of creditors, who ranked in accordance with the pari passu principle. The creditors ranked for pre-liquidation debts, including contingent and future debts, as well as claims for damages assessed as at the date of liquidation.

[64] The disclaimer process was the same for a trustee and a Scottish liquidator (Scottish Law Commission, Memorandum No. 16 - Insolvency, Bankruptcy and Liquidation in Scotland (1971), Professor Halliday at Appendix D). The rights of a liquidator to disclaim onerous contracts, including feus, were similar to the rights of a Scottish trustee, notwithstanding the difference in vesting. If a Scottish trustee now has power to disclaim land, in the sense of abandoning it to the bankrupt, the Scottish liquidator either has no such power, because it is not possible to abandon land to the company that already owns it, or he has the same power by virtue of section 169(2), with the effect that the abandoned land falls to the Crown. However, the liquidators' position was not periled on it being possible to abandon land to the Crown, albeit that that was the neatest solution. The alternative was that the company retained a "shell ownership" of the land whereby the continuing obligations of ownership could not be enforced against the liquidation estate.

[65] Parliament would have been aware of the existing power of a Scottish trustee to disclaim property. It therefore made section 267 of the 1929 Act (1986 Act, s 178) applicable only to liquidators in England. It intended Scottish liquidators to have the equivalent power (see eg Asphaltic Limestone Concrete Co v Glasgow Corporation (supra), Lord McLaren at 470). It was unnecessary, therefore, to extend section 178 to Scotland (see, for example, Report of the Company Law Amendment Committee (1926), Cmnd 2657). In section 178, the word "determine" had the same effect as "disclaimer" by a Scottish trustee or liquidator. It was accepted, however, that there was no general right to abandon land in England and, therefore, section 178 innovated on English common law and its bankruptcy equivalent.

[66] Continuing obligations of landownership, such as occupiers' liability, common law negligence and nuisance, or the contaminated land regime, subsisted after a liquidation. If those obligations did not give rise to debts (actual liabilities) before the liquidation date, then, unless the company in liquidation could disclaim the land in some sense, those continuing obligations would become liquidation expenses to the extent that they became enforceable debts after the liquidation date, thus subverting the pari passu principle. Whilst pre-liquidation debts would rank in the liquidation process, continuing obligations of ownership could subsist until dissolution. The crucial matter for the liquidators, and creditors, was not whether the company remained on the title sheet as proprietor of the land but whether there were other solutions to the problem of the enforceability of post-liquidation obligations.

[67] It had become "fashionable" to explain the unitary nature of property law and the rights of beneficiaries by reference to the concept of "patrimony". The use of patrimony was quite straightforward, however, and a trustee who held both an individual and a trust patrimony could not use the latter to satisfy his personal liabilities (Heritable Reversionary Co v Millar (1892) 19 R (HL) 43). In practical terms, it was no different from using terms such as "legal" or "restricted" or "beneficial" ownership, which produced the same effect that a trustee's personal debts could not be enforced against the trust estate.

[68] It was necessary, in order to give effect to the pari passu principle, that obligations were valued at a single date and the liquidation was not protracted (Re the Nortel Companies (supra). The pari passu principle, the exception of liquidation expenses, and the power to disclaim, were all to be treated as part of a coherent whole. The whole point of the power of disclaimer was to prevent post-liquidation liabilities, insofar as they were not contingent debts as at the date of liquidation, from being enforceable against the liquidation estate. The inevitable consequence of disclaimer was that post-liquidation debts would be enforceable against the Crown or would be worthless rights against the mummified patrimony of the company in liquidation. Following the Lord Ordinary's observations in respect of publicity, which were modelled closely on existing practice under section 178 of the 1986 Act, the consequence would be the same as in England. The claim would lie against the Crown (see eg In re Celtic Extraction (supra)).

[69] The liquidation expenses regime was set out in rule 4.67 of the Insolvency (Scotland) Rules 1986 albeit the court had the power to re-order the priorities (1986 Act, s 154). If there were insufficient funds to meet the liquidation expenses, the court could order that the liquidators' remuneration was to be paid before other outlays. In general terms, liquidation expenses were the result, directly or indirectly, of the liquidators' exercise of discretion in the interests of creditors; such as expenses incurred in carrying on the business as a going concern. The liquidation expenses were, subject to clear and limited exceptions, incurred for the benefit of the liquidation estate and creditors. Only if statute imposed a liquidation expense was there requirement for the company to pay it (eg In re Toshoku Finance UK [2002] 1 WLR 671). If SEPA's interpretation of the CARs were to be preferred, the liabilities arising under the statutory licences would be liquidation expenses (Re the Nortel Companies (supra), Lord Neuberger at para 110).

[70] By giving Scottish liquidators the power to disclaim both land and statutory licences, section 169(2) of the 1986 Act gave effect to the "universalist" nature of liquidation, which was a fundamental aspect of the UK liquidation scheme. Subject to clear statutory exceptions, a liquidator appointed to a company in one jurisdiction could exercise his powers over property in another jurisdiction. In theory, the effect of the winding up was worldwide and concerned with property "wherever situated" (1986 Act, s 436), albeit the effect depended on other systems being prepared to recognise the winding up order. The principles of private international law did not apply (Salaman v Todd 1911 SC 1214). An English liquidator could disclaim Scottish land (ibid). As a matter of international private law, any transfer of land would have to conform to the formal rules of the jurisdiction where it was situated, but that was overridden in respect of any distinction between Scotland and England (1986 Act, s 178). The Land Register would have to be updated in respect of any disclaimer of land.

[71] If section 178 applied to Scottish land, it would be entirely anomalous if section 169(2) were not to be interpreted as affording an equivalent power to liquidators of Scottish companies. There was no rationale behind any geographical restriction where jurisdiction in winding up was based purely on where the company was registered. Subject to express Parliamentary limitations, an English liquidator's powers extended to Scotland, and vice versa. By contrast, a solvent proprietor could not disclaim real property as the existence of such a power at common law would negate the need for the statutory power to be introduced. The Lord Ordinary had been incorrect in affording little weight to the liquidators' suggestion that Scottish and English liquidators should have the same powers.

[72] It had been argued before the Lord Ordinary that land could only be transferred by some method registrable under the Land Registration (Scotland) Act 1979, but the statute itself was expressly without prejudice to any other transaction capable of affecting title to Scottish land (1979 Act, s 2(4)). The classic example was the dissolution of a company whereby land passed to the Crown. There was nothing sacred, in this context, in the Land Register; it was a matter of good housekeeping to note something in the Land Register but it was not a matter of primary law. In any event, it was well-established that property held by a bankrupt in trust did not vest in his trustee in sequestration (Heritable Reversionary Co v Millar (supra); see, now, 1985 Act, s 31(3)) and that the trust estate was not liable for the private debts of a trustee. In such circumstances, the Land Register might not always reflect reality.

The second direction

[73] The liquidators sought to address three main issues: first, whether a Scottish liquidator had the power to disclaim a statutory licence under section 169(2) of the 1986 Act; secondly, if so, whether such a general power had to yield to a contrary interpretation of the CARs; and thirdly, if the "wider interpretation" applied, thus overriding the general position, whether the CARs would be outwith devolved competence.

[74] As to the first aspect, there was a degree of artificiality and unsatisfactoriness in the liquidators' approach, but it was presented as the less unsatisfactory of the competing analyses. A statutory licence, such as a liquor licence, did not vest in a trustee in sequestration. The trustee would be entitled to have the licence transferred to him or to a third party purchaser but it was not transferred by vesting. This was consistent with the principle of delectus personae attaching to a liquor licence as a statutory public law authorisation rather than a private law contract (Anderson v William Hamilton & Co (supra); Asphaltic Limestone Concrete Co v Glasgow Corporation (supra)). Environmental licences, which imposed continuing obligations, were different.

[75] The PPCR imposed obligations similar to those imposed by the CARs but without specific provision for insolvency. The PPCR had no concept of "responsible person" (cf CARs, regulation 8(6)), but the obligations imposed could have very significant financial consequences. The licence did not vest in the trustee. It would be anomalous, as between insolvency processes, if the obligations under a PPCR licence were enforceable as liquidation expenses simply by virtue of the PPCR licence remaining in the ownership of a company. It was entirely reasonable to interpret section 169(2) as conferring a power on the liquidators to disclaim a statutory licence, such that compliance costs would not constitute expenses enforceable against the liquidation estate. Equally, section 178 would apply to enable an English liquidator to disclaim a Scottish licence simply because such a licence fell within the definition of property for the purposes of the 1986 Act (In re Celtic Extraction (supra); Re Mineral Resources [1999] BCC 422). If it were correct that a statutory licence came within the statutory definition of property for insolvency purposes, it could not make any difference whether the licence was issued by a Scottish or English authority. For the same reasons advanced in respect of Scottish and English land, it would be curious if section 178 applied to licences issued by one authority and not another. If a licence was not "property", the liquidators' power to deal with it, including transfer or surrender, came instead from sections 143 and 144 of the 1986 Act.

[76] As to the second aspect, it was relevant to have regard to both conventional domestic provisions and policy considerations, including the European dimension. For the purposes of statutory interpretation, it was presumed that any intended change to existing law would be clearly expressed, that it would not produce an unworkable result in practice, and that the construction that produced the more workable result was to be preferred (Imperial Tobacco v Lord Advocate (supra)) 153, Lord Hope at para [14]). Regulation 2 of the CARs was a "deeming provision" that involved a statutory fiction rather than a literal interpretation. A literal interpretation of "responsible person" would render liquidators or executors personally liable under the CARs, which would be absurd. In addition, the "responsible person" was selected in advance of an authorisation licence being issued (CARs, regulation 8(6)(b)), but that was not the position for liquidators. A liquidator may be wholly unable, whether technically or financially, to secure compliance. Thus, undue weight should not be placed on the literal meaning of the language used in the CARs.

[77] If the CARs created a new and unavoidable obligations ranking before preferential debts, these obligations would dilute significantly the effect of rule 4.67(1)(a) in respect of other outlays. The CARs applied equally to Scottish and English liquidators. The specific reference in the CARs to liquidators had the effect of altering the liquidation regime. The CARs affected the insolvency scheme because they modified sections 386 and 467 of the 1986 Act albeit by implication (Re Mineral Resources [1999] BCC 422, Lord Neuberger at 526). The effect would apply not only to creditors who contracted with the company voluntarily but also involuntary creditors such as HMRC or creditors in delict. The new and unavoidable nature of obligations under the CARs was wholly contrary to the generally voluntary nature of liquidation expenses (see supra). The CARs ought only to affect sections 169(2) and 178 by the use of clear wording (Re the Nortel Companies (supra), Lord Neuberger at para 104). The obligations under the CARs offended the pari passu principle and imposed a "super-priority" (In re Celtic Extraction (supra)). The wider purpose of the CARs was environmental protection but their direct purpose was to modify the insolvency regime.

[78] The proper interpretation of the CARs was that a liquidator was a "responsible person" as agent of the company for so long as he did not exercise a power to disclaim. Such an approach had practical content, as the liquidator might carry on the company's business in the commercial interests of the liquidation. The CARs made specific reference to the liquidator, whereas the PPCR did not, to make it clear that for the relevant period the compliance costs were liquidation expenses, but the liquidator was not personally liable (see eg In re Toshoku Finance UK [2002] 1 WLR 671). In practice, the liquidators would likely have to enter into contracts to have the compliance works carried out in terms of which they would incur personal liability (cf 1986 Act, s 156). If it had been intended that the CARs would remove any right of disclaimer, it was significant that there was no express provision to that effect (cf Coal Industries Act 1994, s 36). The liquidation regime took priority and the CARs had to fit into that regime.

[79] In the present liquidation, there had been realisations of approximately £13.6M. The costs incurred in the liquidation to the end of October 2013 were estimated at £7.5M, leaving funds of £6.1M. The estimated costs of surrender works were not known, but they could not simply be paid from the £13.6M. Instead, they would rank pari passu with the costs already incurred. On SEPA's interpretation, the CARs obligations would rank ahead of the rights of floating charge holders as well as unsecured creditors. If that were the case, no creditor would seek to wind up a company. Similarly, no rational insolvency practitioner would accept office where, first, there was no guarantee of remuneration and, secondly, there was likely to be exposure to personal liability to contractors.

[80] As to implementation of EU Directives and policy, the EU had no competency in insolvency matters. The "polluter pays" principle did not apply when the polluter could not pay (In re Celtic Extraction (supra); R v AbitibiBowater [2012] 3 SCR 443). The costs of compliance were provable debts in the liquidation and future compliance costs had to be set aside before the company was dissolved (ibid). There was no single approach (cf Tubbs v Futurity Investments (supra)) but the liquidators' position was in no way unorthodox. Where EU Directives made provision for financial arrangements to be put in place to meet environmental obligations (see, for example, Council Directive 1999/31/EC on the landfill of waste; Directive 2004/35/EC on environmental liability; Directive 2006/21/EC on the management of waste from extractive industries; and regulation 18(4)(b), PPCR 2012), it was because they could not deal directly with insolvency. Such provisions demonstrated that it was not necessary to alter significantly the law of insolvency in order to implement UK obligations under the EU environmental Directives.

[81] There was a limit to which conventional domestic principles of interpretation could be altered in order to comply with the obvious purpose of an EU Directive. Such principles did not allow for rewriting or amendment (Marleasing v La Comercial Internacional de Alimentacion [1993] BCC 421). The present case was not one of direct enforcement of Treaty rights (cf Vodafone 2 v Revenue and Customs Commissioners (supra); Raffinerie Meditterranee (ERG) v Ministero dello Svillupo Economico (supra)). The court should endorse In re Celtic Extraction (supra), which had been followed without question in the English courts (In re Toshoku Finance UK (supra)).

[82] As a generality, liquidation expenses and ranking debts were mutually exclusive categories. Thus, if the reclaimers had the right to prove for contingent debts (CARs, regulations 32 and 33), it would lend further support to the narrow interpretation of the CARs. If SEPA had the right to do works under the CARs, the cost of those works would be contingent liabilities arising in the course of the liquidation (Re the Nortel Companies (supra), Lord Neuberger at para 77). As for current liabilities in respect of compliance costs to date, those would be treated by the liquidators as liquidation expenses. In the case of disclaimer, any future liability would cease. Unless or until SEPA carried out any work, they would have no ability to rank for the cost of works carried out under the licences. The liquidators were carrying out controlled activities, albeit in a somewhat artificial or technical sense, that is restricted to pumping works on site to maintain the status quo. The obligation to surrender the licences had not yet been triggered.

[83] In relation to devolved competence, the liquidators adopted ab ante the submissions of the Advocate General (infra) subject to two qualifications. First, the CARs were outwith the devolved competence of the Scottish Parliament as they affected the law of England (Scotland Act 1998, s 29(2)(a)); Imperial Tobacco v Lord Advocate (supra), Lord Hope at para [29]). If the CARs applied only to liquidators of companies in Scotland, no Scottish company would ever hold a CARs licence. Secondly, there was a distinction to be drawn between the substantive rules of a liquidation process and the detailed procedure (sch5, para C2, 1998 Act). Whatever the meaning of the term "insolvency process", it did not cover fundamental matters, such as the pari passu principle, the nature of preferential debts, and the power of disclaimer.

Advocate General

[84] The Advocate General intervened on the issues of general importance in relation to, first, the power to disclaim and, secondly, legislative competence. Although seeking to uphold the interlocutor of the Lord Ordinary, the Advocate General submitted that aspects of the Lord Ordinary's analysis, especially in respect of legislative competence, were in error.

[85] The liquidators had the power to abandon the sites and to disclaim the statutory licences. In reaching that conclusion, the pertinent issue was whether a liquidator in Scotland had powers analogous to those of a liquidator in England (1986 Act, s 178). It was necessary for the efficient winding up of companies for a liquidator to be able to disclaim onerous property including land. The third category of abandonment identified by SEPA (failure to deal with or realise assets) was the crux of the issue (Air v Royal Bank of Scotland (supra)). A trustee in sequestration had the power to refuse to deal with assets and thus a liquidator had a corresponding right. The issue then became whether, if such a right of disclaimer existed, the property so disclaimed reverted to the Crown or remained in a separate patrimony.

[86] It had been said that Scots and English law operated in much the same way as regards the disclaimer of onerous property by a trustee or liquidator and that the position in respect of liquidation was broadly similar to that in a sequestration (Scottish Law Commission, Memorandum No 16: Insolvency, Bankruptcy and Liquidation in Scotland (1971), para 105 and Appendix D). In other words, there was a presumption that Scots law operated in the same manner as English law and that, in respect of both a trustee or liquidator in Scotland, disclaimer of land operated in the same way in England (In re Celtic Extraction (supra), Morritt LJ at para 38). That explained why section 178 of the 1986 Act made provision for England only.

[87] The Lord Ordinary had considered the difficulty of whether the Crown had the option to disclaim land which had become bona vacantia (Companies Act 2006, s 1013). The Lord Ordinary's conclusion with regard to the dissolution of companies was correct, but property abandoned prior to dissolution did not fall within the patrimony in the winding up.

[88] The Lord Ordinary's principal construction of the CARs was not correct. The legislation had to be construed according to the intention expressed in the language used. The court should adopt whichever of the broad and narrow interpretations was just, reasonable and sensible (Craies on Legislation (10^th ed), paras 17.1.1 and 17.1.8). If it had been intended to remove a liquidator's right to disclaim, clear language would have been required. In those circumstances, the CARs ought to be interpreted so as to make a liquidator a "responsible person" unless or until he disclaimed a licence or the heritable property to which it related. In In re Celtic Extraction (supra), the Court of Appeal considered the issue of principle raised in Re Mineral Resources [1999] BCC 422. The court's reasoning was highly persuasive and ought to be applied. Specifically, the "polluter pays" principle did not apply when the polluter could not pay (In re Celtic Extraction (supra), Morritt LJ at para 39). There was nothing in the EU Directive that suggested otherwise. In the present case, it may not be that the company could not pay but, rather than the "polluter pays", the creditors would have to pay. The pari passu principle was significant, but there had been no harmonisation of insolvency law at EU level. Tubbs v Futurity Investments (supra) dealt with a wholly different situation, namely an application to disclaim property out of time.

[89] Regulations 2 and 27 of the CARs did not require to be in their present form in order to provide an effective remedy in terms of the underlying EU Directive. The analogous English regulations had no concept of a "responsible person" or a surrender regime. Rather, they provided for an "operator" with no equivalent to regulation 27 (regulations 7 and 18, Environmental Permitting (England and Wales) Regulations 2010). In the English context, licences could be disclaimed (In re Celtic Extraction (supra)) and, insofar as the Insolvency Service were aware, there were no problems in respect of compliance with EU law. In any event, a surrender regime could not guarantee effective implementation of the underlying EU Directive where, as in many cases, there were no funds available for the resultant obligations.

[90] There would be no guarantee that an insolvency practitioner would be remunerated if the outlays payable under the CARs ranked above a liquidator's remuneration amongst the liquidation expenses (rule 4.67(1)(a) and (h), Insolvency (Scotland) Rules 1986, respectively). This point was telling in the Scottish context where there was no equivalent of an official receiver to take on an appointment in such circumstances.

[91] Whether the CARs fell within devolved competence depended on whether those provisions would have been competent had they been included within primary legislation of the Scottish Parliament (1998 Act, s 54(3)). In the application of section 29(2)(a) of the 1998 Act, no issue arose in respect of the law of any territory outside Scotland. In respect of section 29(2)(b) and (c), the statutory scheme was carefully structured such that the provisions had to overcome all of the hurdles specified in section 29(2)(b) and (c) as separate and independent tests (Martin v Most (supra), Lord Hope at para [5], Lord Rodger at para [77]). It was not correct to focus on the objective of the relevant provision, but on whether it was achieved by an invalid method for the purposes of the 1998 Act.

[92] For the purposes of section 29(2)(b), it was clear that "effect" and "purpose" were not synonymous terms (1998 Act, s 29(3)). The effect of the provision was a guide to its purpose but the two concepts could not be collapsed, such that they were necessarily the same in all cases. In the ultimate analysis, it was the purpose of the enactment that had to be determined by reference to its effect and its context, including an understanding of the scope of the reserved matter (Imperial Tobacco v Lord Advocate (supra), Lord Hope at paras [18] and [26]). The Lord Ordinary had conflated the concepts of purpose and effect or, at least, it was not clear that he had not treated the effect of the CARs as being equivalent to their purpose. The purpose of regulations 2 and 27 was to remove the power to disclaim and to compel a liquidator to expend funds on compliance with the obligations imposed thereunder, which obligations took priority over preferential debts. The effect was to make a liquidator a responsible person and to remove the right to disclaim that would otherwise exist.

[93] The Lord Ordinary had been correct to acknowledge that the focus should be on the purpose, but he had provided an analysis (para [61]) of the effect of the provisions only, without acknowledgement of the wider context of environmental protection. There was, however, no materiality in the Lord Ordinary's error as the effect of the CARs justified the Lord Ordinary's conclusion as to purpose. Although the effect on unsecured creditors might only arise on insolvency, it was so fundamental that it impacted on the general effect of winding up and on preferential debts. The impact went beyond the procedural. It was not "loose or consequential" (Martin v Most (supra), Lord Walker at para [49]).

[94] As to section 29(2)(c), the definition of modification of the law on reserved matters was extremely wide and included, but was not restricted to, amendment or repeal (1998 Act, sch 4, para 2, and s 126). These were not matters of Scots private law (1998 Act, s 126(4)). To the extent that they were, they would be special to reserved matters (ibid sch 4, para 2(3)). The effect on the reserved insolvency regime was at the heart of the CARs and not merely incidental or consequential.

[95] The 1998 Act provided a coherent scheme by which legislation could be "topped up" if required in order to comply with EU law (1998 Act, s 104; Martin v Most (supra), Lord Rodger at para [79]). As between the devolved area of the environment and the reserved matter of insolvency, the one did not trump the other. Section 104 would have to be applied. The statutory provisions could be interpreted only "so far as possible" to comply with the principles of EU law (Pfeiffer v Deutsches Rotes Kreuz (supra), para 113). Article 191 of the TFEU did not confer rights directly on individuals and no fundamental principle, such as equal treatment, arose in the present case. It was not for the EU to say that article 191 was to be given effect, especially in the context of a framework directive, with no specific reference to the rules of insolvency.

Decision
[96] Each member of the court has contributed to the content of this Opinion.

The Abandonment of Land
[97] What requires to be considered at the outset is whether the Lord Ordinary's answers to the two questions (supra) concerning the abandonment of land and ownerless land are correct. None of the parties at the Summar Roll hearing supported the idea that land could be abandoned in ordinary course, thereby becoming ownerless. However, out of deference to the Lord Ordinary's reasoning, the court has taken some time to consider the principles involved. One feature, which is not to be ignored, however, is the simple fact that no-one in the court was aware of any instance in which a person (corporate or otherwise) had "abandoned" or "disclaimed" heritable property, so as to render it ownerless.

[98] Terminology is important. Of course a person can abandon land, in the sense of leaving it physically, intending to give up its use permanently (see Gordon and Wortley: Scottish Land Law (3^rd ed) I, para 13-19). This is not what is under consideration here. What requires to be decided is whether a person can "abandon" or "disclaim" ownership of land. What then is ownership? Without indulging in a philosophical essay, it is "a legal relation subsisting between a person and a thing, whence flows to the former the right to use and dispose of the latter indefinitely, so far as he is not restrained by law or paction" (Rankine: Landownership (4^th ed), p 98, citing Vangerow: On the Pandects (9^th ed), para 295). It is a legal relationship and the law must, and does, regulate the methods whereby it may be brought to an end. It may be worth observing en passant that, strictly, it is not "ownership" that is transferred. It is the land which may be transferred and thereby result in the termination of one person's ownership and its creation in another (Reid: The Law of Property in Scotland, para 652; Hohfeld: Fundamental Legal Conceptions, p 12).

[99] What is being examined is not a personal right to acquire an interest in land but a real right, which is created when the appropriate title is recorded in the General Register of Sasines or the Land Register (see Abolition of Feudal Tenure etc. (Scotland) Act 2000, s 2). The operation of such mechanisms as prescription following upon a habile title have not been forgotten, but they are of no direct relevance.

[100] Ownership of moveables can be terminated by physical disposal coupled with the appropriate intention (Mackenzie v MacLean 1981 SLT (Sh Ct) 40) or by similar circumstances implying abandonment (Lord Advocate v University of Aberdeen 1963 SC 533). With ownership of land, however, the existence of the written record is important since it renders the fact of ownership public and, subject to the operation of law, permanent. This has a number of significant consequences; notably, but by no means exclusively, in relation to diligence, inheritance and the performance of obligations which run with the land. As a generality, the world is entitled to look to, and rely upon, the Registers to establish who owns a piece of land, in the sense of having a real right in it, at any given moment.

[101] The law provides a number of methods by which a person's ownership of land can be terminated. It is conceivable that the land itself may be destroyed by coastal erosion or some other physical effect upon the solum, but there is no issue about the disappearance of the land itself here. Equally, there are situations where the owner disappears; not in the sense of simply vanishing from view but actually ceasing to exist. Thus a company may be dissolved or an individual may die leaving no heirs. In these situations it is established (infra) that the land falls to be regarded as bona vacantia (property which has become empty) and may be disposed of by the Crown (infra). That type of situation does not, as yet, apply here either.

[102] There are only two other methods by which a person's ownership of land can be terminated. The first is where the law operates to divest him of it by means of a formal legal process. There are a number of these, such as land attachment (formerly adjudication), the enforcement of a power of sale in a standard security and, of course, compulsory purchase. All require the recording of the relative court decree or other writing in the Registers to obtain a real right. Perhaps of more significance in the current context, all of these processes involve the acquisition of ownership by another person. The land is not "abandoned".

[103] The second method of termination is by voluntary transfer to another person, by either inter vivos or mortis causa disposition, again followed by the recording of the appropriate document (2000 Act, s 4(1)). There is no legal process whereby a person can transfer land into oblivion. In short, then, the answer to the first question is that a person cannot abandon the ownership of land in the sense of casting away the real right (cf notice of abandonment in terms of s 32(9A) of the 1985 Act (infra)).

[104] The second question is whether there can be ownerless land. The answer to that is that land can indeed be ownerless, if by that is encompassed the situation in which the owner of the land ceases to exist (supra). That can occur, as already noted, with the death of a person without heirs or upon the dissolution of a corporate body. In that situation, as is well known, the maxim quod nullius est fit domini regis (that which is the property of no-one belongs to the Crown) applies to land as it does to moveables.

[105] According to the former feudal law theory, all heritable property within Scotland had a proprietor (see eg Juridical Society: Complete System of Conveyancing: Heritable Rights (4^th ed) I.i, ii). The Crown, as the ultimate superior, owned "every part of the soil" and made general grants of land, of varying tenures, to others. These mid-superiors could in turn grant the permanent use (dominium utile) of the land to vassals. Whether the whole of Scotland, especially urban property in existence prior to the incursion of feudalism, was disponed for private use in this way is highly doubtful. That issue may be shrouded in the mists of time. It is certainly the case that, from time to time, questions are raised about parcels of land for which no feudal or land registration title can be found (see 2000 Act, s 6).

[106] The principal form of feudal holding came to be that of the simple feu, with the only obligation to the superior being payment of the feu duty. In the event of the feuar failing to pay that duty for a period of two years, the superior could seek resumption of the feu by obtaining a decree of irritancy in an action ob non solutem canonem (on account of non-payment of feu (or canon) duty; ie tinsel of the feu; see Bell: Principles (10^th ed), para 701). The important point, however, is that the land was not treated as "abandoned" in the sense that it fell to the Crown as bona vacantia (supra), if the feuar or his heirs were still alive.

[107] Applying strict feudal theory, if there ceased to be a vassal, it might have been thought that his interest in the land would revert to the superior (propter defectum tenentis; because of the disappearance of the holder), since there was no-one left to perform the feudal obligations, which would originally have been militaristic in nature. However, this is not how the law developed (Macmillan: The Law of Bona Vacantia in Scotland, p 5). Rather, the land (that is to say that which had been the vassal's dominium utile) fell, under Roman law principles, to the Crown as bona vacantia, leaving it to the Crown to dispone the land to another (see now 2000 Act, ss 58(1) and 59). That person would replace the former vassal in his relationship with the superior (see Bell: Principles (10^th ed), para 730 sub nom. "escheat").

[108] Accordingly, there must be land which can be described as ownerless, since it is only then that it will be classified as bona vacantia. There is no basis for concluding that the abolition of feudal tenure resulted in any alteration to this principle derived from Roman law. However, it may be wrong to describe the exercise of what is a prerogative right of the Crown, to administer land which has become bona vacantia, as creating a real right of ownership in the Crown in the private law sense. The right of the Crown is more properly described as one derived from public law. It enables the Crown to take possession of "lost" property, including land with no owner. The Crown can then administer the land for the benefit of the community and dispose of it to another person. The right has thus been described as "possessory" (Macmillan (supra), pp 9, 12) or one of "occupancy" (ibid, pp 5, 7). That may result in the emergence of a real right of ownership in the case of moveables, should possession be taken (Lord Advocate v University of Aberdeen (supra), Lord Patrick at 554, Lord Mackintosh at 559). However, it does not (at least normally) involve the Crown acquiring a title to the land (Macmillan (supra), p 12). Rather, it concerns a right, or perhaps better a power, to administer the property (Rutherford v Lord Advocate 1932 SC 674, LP (Clyde) at 678) even if some authorities use the rather loose terminology of "belonging". The Crown requires to exercise the right for it to be effective, but need not do so. Indeed, the right may be waived (Macmillan (supra), p 12). In this context, section 1013 of the Companies Act 2006, which expressly permits the Crown to "disclaim" property vested in it by reason of a company's dissolution, can be seen as essentially consistent with the common law, albeit that the statutory route may be procedurally more complex.

[109] The problem then is what happens to land if the right is expressly waived or simply not exercised by the Crown. In that event, ownership of the land may be acquired by means of an a non domino habile disposition followed by occupation for the prescriptive period (Prescription and Limitation (Scotland) Act 1973, s 1). Otherwise, it may simply lie dormant in an ownerless state. However, the fact that a parcel of land is ownerless, in the private law sense, does not mean that it ceases to be part of Scotland. It does not. That matter is determined by international public law principles and not those of private law (see Shetland Salmon Farmers Association v Crown Estate Commissioners 1991 SLT 166, LJC (Ross) at 171, Lord McCluskey at 184).

Powers of a Trustee
[110] The Insolvency Act 1986 provides (s 169(2)) that a liquidator in a winding up by the court in Scotland has the same powers as a trustee on a bankrupt estate. This is a significant provision since it defines what the liquidator can do and, to a degree, what he cannot do. In terms of the Bankruptcy (Scotland) Act 1985 (s 31(1)):

"the whole estate of the debtor shall, by virtue of the trustee's appointment, vest in the trustee at the date of the sequestration for the benefit of the creditors".

"Estate" is now defined further (s 31(8)(aa)) as:

"any property of the debtor, title to which has not been completed by another person deriving right from the debtor".

[111] It is central to a proper analysis of the powers of a trustee to grasp exactly what is the effect of property "vesting" in a trustee. The short point is that, of itself, sub-section 31(1) does not have the effect of the trustee obtaining ownership of either moveable or heritable property, in the sense of conferring a real right in the property. In the normal situation, for example, the acquisition of a contractual or other right to an item of moveable property would require to be followed by delivery (sale being a statutory exception) or, in the case of incorporeal moveables, a duly intimated assignation in order to become real; that is enforceable not just against the transmitting party but the world. It is only by virtue of sub-section 31(4) that such property vests in the trustee as if he had taken delivery of it or intimation of an assignation had been made. All of this makes it tolerably clear that the vesting provision in section 31(1) does not, of itself, result in the creation of a real right amounting to ownership. Instead, it creates a personal right in the trustee to acquire ownership of the property using the accepted methods of doing so (Goudy: Bankruptcy (4^th ed) p 268). If registration is required to complete title, then it must be carried out (Morrison v Harrison (1876) 3 R 406).

[112] In relation to heritage, the 1985 Act, and its predecessors, used to provide that the act and warrant was the equivalent of a decree of adjudication in implement of sale (1985 Act, s 31(1)(b)). The effect of this has been said to amount to an "absolute title" (T Burns: Bankruptcy in Stair Memorial Encyclopaedia (Reissue 2), para 80), yet where infeftment was previously required, it had to be carried out (ibid) to acquire a real right (Burnett's Tr v Grainger 2004 SC (HL) 19). The vesting was then effectively equivalent only to the delivery of a disposition (see McBryde: Bankruptcy (2^nd ed) para 9-30). It created a jus ad rem (a right to the object, ibid para 9-33) rather than a jus in rem (a right in the object). The same considerations apply to the modern system of registration of title. Registration, in one form or another, is required to complete title. The current provisions of the 1985 Act, as amended by the Bankruptcy and Diligence etc. (Scotland) Act 2007, state that upon the award of sequestration, the sheriff clerk "forthwith" intimates a copy of the award to the Keeper of the Register of Inhibitions and Adjudications for recording (1985 Act, s 14(1)). This has the effect of an inhibition and a citation in an adjudication (ibid s 14(2)).

[113] The trustee can complete title by recording the appropriate Notice of Title or, for the Land Register, applying to update the title sheet in order to show the trustee as proprietor, once the 28 day statutory period has expired (Land Registration (Scotland) Act 1979, s 3(6); 1985 Act, s 31(1A)). He would thereby acquire, if he desired it, a real right. Meantime, however, he does not have ownership of the land. He has an unqualified right to complete title, but he does not require to do so. If he does not do so, what he retains is a personal right to acquire ownership, which he may elect to enforce or decline to do so. This option is akin to that in relation to the adoption of a contract. If the decision is not to complete title, that does not involve any abandonment of property; rather, it is a decision not to proceed to enforce a personal right.

[114] A number of cases were cited in which there has undoubtedly been judicial reference to a trustee "abandoning" property (eg LJC (Boyle) in Mitchell's Tr v Pearson (1834) 12 S 322, at 325-326; and in Marquis of Abercorn v Grieve (1835) 14 S 168 at 171). However, close analysis of these cases makes it clear that it is a personal right (and its counterpart obligation) that is being given up (ibid Lord Glenlee at 172). Thus in Mitchell's Tr v Galloway's Trs (1903) 5F 612, Lord Adam referred to the alternatives of abandoning or adopting the "feu-charter" and not the feu (see also Lord Kinnear at 618).

[115] Air v Royal Bank of Scotland (1886) 13 R 734 is not of direct assistance. It was about whether dividends, in the sense of funds calculated by a trustee as due to the creditors at the end of a sequestration, could be abandoned (ie by the creditors). It did not relate specifically to property belonging to the bankrupt which has vested in the trustee. The Lord President (Inglis) referred (at 736), in what was an ex tempore opinion, to an asset "reverting" to the bankrupt if the trustee and the creditors resolved not to "take it up". However, in support of that view, he cited his earlier decision in Fleming v Walker's Trs (1876) 4 R 112, which had involved whether a bankrupt could pursue a claim that a lease had been fraudulently assigned prior to a sequestration and, which, it was determined, had not formed part of the sequestrated estate at all. Once again, in so far as any heritage is concerned, what is being contemplated is a trustee's right to decline to pursue personal rights and not the "abandonment" of real rights of ownership in land.

[116] A trustee can elect not to enforce a personal right. If that right is to acquire ownership of land, it can (no doubt with the consent of the creditors) be given up and in that sense "abandoned", leaving ownership (the real right) where it rests (with the bankrupt). In the case of moveables, the trustee can "abandon" them as any other person may do, by deliberately throwing them away (supra). If, however, the trustee acquires ownership of land, in the sense of having a real right in it recorded in the appropriate register, he cannot divest himself of that simply by declaring it to be no longer his own. The land will remain recorded in his name until it is transferred from him, using the formal methods already described. He may, and usually does, dispone any land by deducing title through the decree awarding the sequestration rather than by completing title in his own name in advance of any subsequent transfer. Unless and until he does so, the real right will rest upon the terms of the relevant Register.

[117] There is now an express provision whereby a trustee can "abandon" heritable property, but he can only do so in favour of the debtor (1985 Act, s 32(9A)). This is a statutory procedure which, again, requires appropriate documentation to be recorded in the Register of Inhibitions (see Bankruptcy (Scotland) Regulations 2008, Form 21, and 1985 Act ss 32 (9B and C)). Although the term "abandon" is used in the statute, the land is not abandoned. What this involves is the abandonment of any "claim to the debtor's share and interest ... in the property" (ibid, Form 21). No transfer of ownership is envisaged. Rather, the trustee gives up what (as detailed above) is a personal right to acquire ownership of (that is, a real right in) the property. In a sense it may loosely be described as "abandonment"; but of a right to the property, not the property itself.

[118] The degree to which all of this is of importance in deciding the practical issues in this case may be very limited. A trustee may be able to avoid certain liabilities involved in an onerous contract by not adopting it. He may also be able to avoid liability in respect of obligations which run purely with the ownership of land by declining to take title from the bankrupt. He cannot, however, rid himself of liabilities owed to creditors, not by the owner of the land as such, but by the bankrupt, who may also happen to be the owner, just because these liabilities relate to land to which he (the trustee) has declined to take title.

[119] A trustee is the person in whom the estate vests to enable it to be ingathered, the claims against it established and for it thereafter to be distributed according to the rules of ranking. It is of the essence of the process that the trustee takes the estate tantum et tale (with all its advantages and faults; Myles v City of Glasgow Bank (1879) 6 R 718, LP (Inglis) at 725; Heritable Reversionary Co v Millar (1882) 19 R (HL) 43, Lord Watson at 49; Burnett's Tr v Grainger (supra)). He is liable ("represents the bankrupt in his liabilities" (Myles (supra)) to the extent of the estate (as at the date of vesting). His duty is to rank the creditors accordingly. He is not bound to take on any additional liabilities as might be contractually incumbent upon the bankrupt. That is to say, he is entitled to do nothing by way of future performance and to leave the other party to rank for damages. In that respect, he is doing no more than any person might do. The only difference is that the court will not grant a decree for specific implement against a trustee in bankruptcy, because he cannot be forced to incur further debt by virtue of the performance of any private law obligation. However, any obligation on, or liability of, the debtor does not disappear upon sequestration. It remains extant; hence the availability of ranking in respect of a claim for damages. The trustee cannot elect not to rank a competent claim by "disclaiming" the relevant liability as relating to an asset which he does not wish to realise. If the liability is personal to the bankrupt, it requires to be ranked whether or not the trustee chooses to deal with the asset to which it relates in a general, rather than real, sense.

Powers of a Liquidator
[120] Like a trustee, a liquidator, as manager of the company and acting on its behalf (Smith v Lord Advocate 1978 SC 259, LP (Emslie) at 272) can decline to perform any personal private law obligation incumbent upon the company under an onerous contract with another party, thereby placing the company (not the liquidator) in breach of that contract (Asphaltic Limestone Concrete Co v Glasgow Corporation 1907 SC 463, Lord McLaren at 473, followed in Joint Administrators of Rangers Football Club, Noters 2012 SLT 599, Lord Hodge at para [46]). However, no such obligation is present here.

[121] Unlike the situation of a trustee, who obtains a personal right to acquire ownership of the bankrupt's heritage upon vesting of the sequestrated estate, a liquidator acquires no such right. The company's property, whether moveable or heritable, does not vest in him at all (Crown Estate Commissioners v Liquidators of Highland Engineering 1975 SLT 58, Lord Keith at 60). The liquidator becomes the custodier of the company's assets, but they do not vest in him. Any real right in heritage (and indeed any other right) remains with the company in the absence of a vesting order under section 145 of the Insolvency Act 1986. Such orders are rare and none exists here.

[122] As has been outlined above, a person cannot "abandon" land in which he has a real right of ownership. He may rid himself of it by disponing it to a third party or it may be transferred from him to another by legal process, but neither circumstance arises here. Thus, in the absence of a specific power to do so, a liquidator (as agent of the company) has no power to divest the company of a real right in land by unilateral disclaimer whereby the land would become bona vacantia and fall to be administered by the Crown, if it elected to exercise that prerogative right.

[123] There is no separate "patrimony" of a company, mummified, mothballed or otherwise in a winding up. The whole assets of a company remain its property, which the liquidator is under a statutory duty to take into his custody (1986 Act, s 144). Equally the company's whole liabilities remain its debts, for which the creditors are entitled to rank. From a practical point of view, the liquidator may elect, in certain circumstances and with appropriate sanctions, not to realise certain property, whether moveable or heritable; or he may be unable to realise it. If that remains the position as at dissolution, then so be it. No doubt it will be suitably described in the liquidation accounts. The property, however, does not become separated in any legal sense from the company's general assets in advance of that dissolution. In this context, the idea of separate patrimonies, which can exist where a person holds property in different legal capacities, and thus in different estates (eg trust property), has no application.

[124] The court notes the difference between the insolvency regimes in England and Scotland created by section 178 of the Insolvency Act 1986 (and its predecessors), whereby a liquidator in England can "disclaim" onerous property. There is no such general provision in relation to Scotland albeit that, as noted above, a Scottish liquidator may decline to adopt an onerous personal obligation. Section 178, however, does not simply confer a power. It defines what "onerous property" is and the manner in which a disclaimer can be made. It provides that a person may rank for damages in respect of a disclaimer and for the exercise of certain powers by the court where a disclaimer has been made. It is not simply that there is a difference between the two jurisdictions in relation to the act of disclaimer. There is an absence of any provision for Scotland not only in relation to the power of disclaimer but also in relation to how it might be exercised and in relation to what property.

[125] It is of some note that the Scottish Law Commission considered whether a general right "to disclaim onerous property of the bankrupt or of the company as the case may be" could "with advantage" be introduced into Scotland (Memorandum No 16, Insolvency, Bankruptcy and Liquidation in Scotland (1971), para 105). The conclusion, after consideration of a paper from its Vice Chairman, namely Professor Halliday (Appendix D), was not so much that such a power already existed in Scotland but that "in the absence of public demand for such a provision and in view also of the impending changes in the law relating to feudal tenure, such a change in the law is not required" (emphasis added). The Halliday paper considered that, in relation to bankruptcy, the law in England and Scotland operated "to much the same effect". It expressed the view that "[w]here land is held by the bankrupt on feu the trustee may abandon it". For the reasons given above, the court does not quite agree with that analysis in so far as it might suggest that a real right, once acquired, can be abandoned to the four winds, but otherwise it agrees that a trustee can avoid taking title to land. In a much shorter passage relative to liquidation, Professor Halliday also thought that the position in Scotland was similar to that in England so far as renouncing contracts was concerned, but he did not analyse disclaimer of a real right in land in this context.

[126] It is argued that it would be anomalous if an English liquidator could disclaim Scottish property, yet a Scottish liquidator could not do so in relation to English property. The court does not regard this as anomalous. The manner in which an item of property is treated in accounting terms in the context of a winding up is no doubt a matter for the law applicable to the winding up (lex fori). An English liquidation may involve disclaimer of property held anywhere in the world and the liquidation process, and any final dividend upon dissolution, may proceed accordingly. However, the manner in which heritable property is actually disposed of is a matter to be determined by the lex situs (the law where the property is situated). Whatever the powers of a liquidator may be in terms of the law under which the liquidation is processed, the property will not transmit from the company unless that is achieved in accordance with the law applying where the land is located (see eg Joint Administrators of Rangers Football Club, Noters (supra), Lord Hodge at para [19]).

The Abandonment of Statutory Licences
[127] With a view to preserving SCC's funds for distribution among its unsecured creditors and the floating charge holder, the liquidators wish to shed the statutory obligations to which the mining operations of SCC are subject by "abandoning" or "disclaiming" the CARs and other statutory licences. Although they are only one source of statutory obligation, SCC's several CARs licences were taken to be appropriate exemplars of a statutory licence for the purposes of the liquidators' request for the second direction. Such is the level of cost associated with the proper discharge of those statutory obligations, the liquidators estimate that compliance will exhaust the funds realised by them from the sale of SCC's assets within 20 to 22 months.

[128] Taking the CARs licence for the site at Muirkirk as an example, SEPA authorise a specified controlled activity, notably the discharge of trade effluent, at or near specified associated waters (the Stottencleugh Burn), "subject to the requirements of [the CARs]" and to specific conditions attached to and forming part of the licence. The first of the general conditions is that the "responsible person", being SCC, shall secure compliance with the conditions.

[129] The underlying scheme of the CARs is to prohibit "any controlled activity" (reg 4), including any activity which has or is likely to have a significant adverse impact on the water environment. In particular, activities liable to cause pollution are controlled (reg 3). Controlled activity may, however, be authorised (CARs, part II) by the grant of a CARs licence by SEPA to a "responsible person" (reg 8). A person can become a "responsible person" without any intention of so being. If it appears that a person is carrying out a controlled activity without authorisation, SEPA may treat the activity as one in respect of which an application for authorisation has been made (reg 10) and, if it thinks fit, grant an authorisation (reg 8). Moreover, and importantly for present purposes, the definition of "responsible person" (reg 2) includes the trustee in bankruptcy of a sequestrated responsible person and, if the responsible person is a company, a receiver, administrator or liquidator of that company. Thus, simply by assuming the role of, for example, liquidator, the insolvency practitioner concerned becomes "the person who is responsible for securing compliance with the terms of [any CARs] licence" granted to the company.

[130] A CARs licence may be regarded as an asset. It provides the responsible person with authority to carry out a controlled activity and thereby permits the exploitation of a valuable resource. But it will inevitably bring with it associated liabilities. Regulation 8 requires SEPA, in granting a CARs licence, to impose such conditions as it considers necessary or expedient for the purposes of protection of the water environment. A condition so imposed may require an applicant to carry out works or do other things in relation to land, whether or not the land is within the ownership or control of the applicant (reg 8(3)). It is the responsibility of the applicant to obtain all consents necessary to allow compliance with the condition.

[131] Part VII of the CARs provides for the creation and prosecution of criminal offences. Specifically, it is an offence, inter alia, for a person to carry on, or permit others to carry on, a controlled activity without authorisation (reg 44). There is provision for enforcement (part V and sch 6), which is the responsibility of SEPA (reg 31). SEPA may suspend or revoke an authorisation (reg 29). It may serve an enforcement notice on the responsible person specifying preventative, mitigatory or remedial steps (reg 32). SEPA also has power to carry out works if it considers it necessary to do so forthwith (reg 33). If SEPA carries out such works, it can recover the cost of doing so from the responsible person (ibid).

[132] Variation and termination of authorisations is dealt with in part IV of the CARs. A responsible person may apply to SEPA for variation of a CARs licence (reg 24) or for its transfer to a third party by way of a joint application (reg 25). Where it is intended to cease the authorised activity, or the authorised activity has already ceased, regulation 27 applies. The responsible person is required to apply to SEPA to surrender the authorisation or part of it (reg 27(3)). SEPA must determine the application, by granting it or refusing it within two months (reg 28). SEPA must assess the steps, if any, which are necessary: (a) to avoid a risk of adverse impact on the water environment as a result of the cessation of the authorised activity; and (b) to leave the water environment in a state that complies with the body of European, United Kingdom and Scottish environmental legislation identified in part I of schedule 4 to the CARs ("any steps necessary"). If SEPA grants the application to surrender, its notice of determination must specify and require the responsible person to take any steps necessary.

[133] By virtue of it having applied for and been granted a CARs licence, SCC incurred onerous obligations to avoid the risk of adverse impact on the water environment and to leave it in such a state that it complies with the relevant environmental legislation. These obligations subsist notwithstanding the cessation of any or all activity on the part of SCC and, in particular, any controlled activity. Moreover, by virtue of the very clear terms of regulation 2(1) of the CARs, which as already noted include a liquidator within the definition of "responsible person", those obligations are incumbent upon the liquidators. There may be a situation where such obligations, or their pecuniary equivalent, have been assumed at some stage by a third party, such as by virtue of a guarantee or performance bond. That is not the case here. Accordingly, in this case the relevant statutory obligations will come to an end on the dissolution of SCC and the liquidators vacating office (cf In re Celtic Extraction [2001] Ch 475, Morritt LJ at para 44).

[134] It is implicit in his reasoning that the Lord Ordinary accepted, as a matter of general law, that a Scottish liquidator has a power to disclaim a statutory licence, as he has power to disclaim other onerous property. Essentially for the reasons which lead to the conclusion that a Scottish liquidator has no power to divest the company of a real right in land by a unilateral disclaimer (supra), however, a liquidator has no such power in respect of statutory licences.

[135] It is worth emphasising that the request for the second direction uses the expression "abandon (otherwise disclaim)" the statutory licenses. This suggests giving up something which is of value; surrendering an asset. That a statutory licence, such as a CARs licence, can be an asset, in accounting terms, and classified as an item of property in legal terms (see 1986 Act, s 436) is clear, notwithstanding that the better analysis may be that such licences confer privileges and immunities rather than rights. At least in the case of a CARs licence, it may be transferred and may, therefore, have commercial value. In the present case, however, the liquidators are seeking a direction allowing them to "disclaim" the licences because, consistent with their fiduciary duties towards the company and its creditors, they wish to be able to extinguish or terminate unilaterally a (very large) liability.

[136] As already noted, a Scottish liquidator does not have the express power of an English liquidator to "disclaim any onerous property" (1986 Act, ss 178 to 182; see also Re Mineral Resources [1999] BCC 422, Neuberger J at 429 and In re Celtic Extraction (supra), Morritt LJ at para 34). The definition of "property" for the purposes of section 178 is wide and has been held to include a waste management licence. Whether a Scottish liquidator has power specifically to abandon a CARs licence, and thereby bring an end to its onerous conditions, must depend on the terms of the CARs and the relevant licences.

[137] The CARs establish a specific statutory surrender regime, which is expressly imposed on liquidators. That, at least, is the position if the "broad interpretation" of the CARs is the correct one (infra). The inclusion of liquidators within the definition of "responsible person" does not impose personal liability beyond the extent of the insolvent estate. To that extent, the broad interpretation involves some departure from a strictly literal interpretation of the CARs. However, such an interpretation, by which a liquidator is responsible for compliance with the conditions of the licence as long as he remains liquidator and has not been allowed to surrender it in the prescribed manner, is to read the legislation "with the grain" (Ghaidan v Godin-Mendoza [2004] 2 AC 557 Lord Rodger at para 121). It respects the ordinary meaning of the language used.

[138] The alternative and narrower interpretation would require the CARs to be read in a way that goes against the ordinary meaning of the language used. Specifically, the CARs do not say that a liquidator is a "responsible person" only for so long as he does not exercise a power to disclaim. Such an interpretation is contrary to the plain meaning of the CARs and ignores the additional problem that a Scottish liquidator does not, in any event, have a general or statutory power to disclaim. It would be a curious construction of an explicit provision that a liquidator is a responsible person and, therefore, responsible for ensuring compliance with the statutory licence, only for as long as he chooses. The narrower interpretation of the CARs is further undermined by the existence of the specific surrender provisions.

[139] The CARs constitute a self-contained and exclusive code relating to the grant, terms, revocation, surrender and transfer of the statutory licences. The holder of a licence can only divest himself of the licence, and avoid the obligations imposed on him thereunder, in accordance with that code (see Re Mineral Resources (supra), Neuberger J at 429). A CARs licence may be an item of property, but its various features must be determined by reference to the statute that created it. Amongst these features is the way in which it can be brought to an end with the result that the responsible person is divested of his responsibilities. That is by operation of the regulations 27 and 28 surrender provisions; not by "disclaimer" or any other method. Where legislation makes specific provision for a situation (for example, the surrender of an authorisation) by way of a particular mechanism, then that specific provision is to be taken as superseding any more general alternative (Re Mineral Resources (supra), Neuberger J at 432, citing R v Secretary of State for the Home Department ex p Hickey (No 1) [1995] QB 43, Rose LJ at 56 quoting Bennion: Statutory Interpretation (2^nd ed.) at p 205).

[140] The CARs is a piece of legislation which is concerned with the regulation of water use. However, individual pieces of legislation do not operate in a vacuum. They are intended to form part of, and fit within, a larger but nevertheless coherent body of legal rules and principles. Accordingly, all things being equal, the interpretation of a particular piece of legislation which does the least violence to existing rules and principles is to be preferred (Cross: Statutory Interpretation (3^rd ed.) at p168).

[141] Among the rules and principles which make up what is intended to be a coherent body of law are those associated with the various insolvency regimes. The Court of Appeal in In re Celtic Extraction (supra) considered that the wide interpretation of the Environmental Protection Act 1990 would offend against the rules and principles associated with the various insolvency regimes, in particular, "the very considerable and oft-repeated public policy requirement that the property of insolvents should be divided amongst their unsecured creditors" (the pari passu principle). That led the Court to favour the narrower interpretation. However, the presumption against unclear or apparently inconsistent changes in the law must, of necessity, yield to a clear statement of legislative intention. The CARs contain such a clear statement of intention derived from the language used and the intended purpose.

[142] Where, as here, the relevant legislation was enacted to implement an EU Directive, it is taken to be the legislative intention to achieve the purpose of the Directive. As was said by the Grand Chamber of the European Court of Justice in Pfeiffer v Deutsches Rotes Kreuz [2005] ICR 1307 (at para 113 and reiterating the point made in Marleasing v La Comercial Internacional de Alimentacion [1993] BCC 421 at 440):

"... when it applies domestic law, and in particular legislative provisions specifically adopted for the purpose of implementing the requirements of a Directive, the national court is bound to interpret national law, so far as possible, in the light of the wording and the purpose of the Directive concerned in order to achieve the result sought by the Directive and consequently comply with the third paragraph of article 249 [of the Treaty]."

[143] As already noted, the CARs were made under section 20 of the 2003 Act, which was enacted in order to transpose the Water Framework Directive into domestic law. The Water Framework Directive is extensive in its scope and ambitious in its objectives. Its purposes include, for example, the establishment of "a framework for the protection of inland surface waters, transitional waters, coastal waters and groundwater which: ...ensures the progressive reduction of pollution of groundwater and prevents its further pollution" (art 1(a)). Where an insolvent company will in due course be dissolved, enforcing a statutory licence against a liquidator affords at best only temporary and imperfect environmental protection. Nevertheless it would seem to be beyond argument that the broad interpretation of the CARs will better achieve the desired result. As a consequence, SCC's environmental obligations will be treated as liquidation expenses, thereby giving them priority over other obligations.

[144] If further justification were required, there are persuasive factors in favour of giving pre-eminence to the policy of maximising environmental protection over the policy of the expeditious and equal distribution of available assets among the unsecured creditors of an insolvent company. In Re Mineral Resources (supra), Neuberger J observed (at 431):

"First, ... there is considerable public interest in the maintenance of a healthy environment, and in the principle pithily expressed as 'the polluter must pay'. It is the view which prevails both in the popular perception and in the legislative system in this country and, indeed, in most of the developed world. It is not merely apparent from the provisions of the 1990 Act itself, but also from the terms of the EC Council Directive of 15 July 1975 on waste .... On the other hand, while I accept that provisions of the 1986 Act relating to winding up and disclaimer are not merely for the benefit of individual shareholders, creditors, debtors and liquidators of companies, but also for the good administration of business and commerce, ... those interests are of a less wide ranging and important nature, both in the domestic sense and in the international sense, than the concerns embodied in the 1990 Act.

Accordingly, there is nothing surprising in the notion that the legislature should have intended that continued compliance with a waste management licence should override what the interests of the creditors or contributories of a company, and administrative concerns, namely the speedy winding up of companies. While other considerations must be considered, ... at least in the absence of strong factors the other way, ...the interest in the protection of the environment should prevail over the interest in fair and orderly winding up of companies."

[145] The debts of a company that may be enforced in the liquidation process are those which were outstanding as at the date of the winding up. It is possible to rank in respect of future and contingent debts, but "[the] critical point is that any personal obligation of the insolvent company, if it is to be enforceable in the winding up process, must be in existence at the date of the winding up" (Liquidator of Ben Line Steamers, Noter 2011 SLT 535, Lord Drummond Young at para 21). This presents a difficulty for SEPA in respect of ranking for losses or costs incurred by reason of post-liquidation events. In any event, however, it is far from clear that the pari passu principle is violated by the inclusion of environmental liabilities within the category of liquidation expenses.

[146] For present purposes, it is unnecessary to determine whether it might be possible for SEPA to rank in the liquidation in respect of liabilities arising from a failure by the company to discharge its obligations under a CARs licence. It is sufficient to note that attempting to do so would be likely to be "both unsatisfactory and difficult" at (Re Mineral Resources (supra) Neuberger J at 433). While it "would be dangerous to try and suggest a universally applicable formula" (Re the Nortel Companies [2013] 3 WLR 504, Lord Neuberger at para 77) for identifying a provable debt, something must have occurred pre-liquidation to establish the necessary contingent liability. In the context of the obligations imposed by a statutory licence, however, that would by no means necessarily be the case, particularly in respect of obligations going beyond recovery of the cost of works carried out by SEPA (reg 33(2)). There is no question of SEPA having title and interest to make a claim for damages on behalf of the environment.

[147] That even partial recovery of the costs imposed on the environment by the relevant controlled activity would be so doubtful, in the event of a liquidator being able to abandon a statutory licence and to divest himself of the status of "responsible person", confirms that, on a proper interpretation of the CARs, the only available method of terminating the obligations imposed on a liquidator is by means of statutory surrender. That is so when considering the case of an insolvent liquidation. The point becomes more acute when one considers the case of a voluntary winding up of a solvent company, where liquidation would offer shareholders the prospect of ridding themselves of an onerous statutory licence at no cost to the assets available for distribution. Indeed, the liquidators recognised that such a prospect would be unacceptable and sought a power to disclaim only in the circumstances of insolvency and subject to the discretionary control of the court. No basis in principle or statutory construction was offered, however, for drawing such a distinction between the powers of a liquidator in either case.

Devolved competence of the CARs
[148] Against this background of statutory interpretation, it may be unsurprising that the Lord Ordinary observed (para [55]) that:

"had other things been equal, there were powerful considerations which might have persuaded me that I should not follow the Celtic Extractions case but instead have reached a view which was closer to that of Neuberger J in Mineral Resources by holding that the liquidators could not disclaim, but should seek to achieve the surrender of the licences by using the procedures in regulations 27 and 28 of CAR".

In other words, the Lord Ordinary might have favoured the broad interpretation of the CARs, for which the reclaimers argued, rather than the narrower interpretation advanced by the liquidators. However, he concluded (para [67]) that sections 29, 54 and 101 of the Scotland Act 1998, and schedules 4 and 5 to that Act, required him to adopt a narrower view of the provisions, so that the subordinate legislation was not outside devolved competence.

[149] The liquidators alone advanced an argument that a wide interpretation of the CARs would result in the provision being outside the legislative competence of the Scottish Parliament because it would form part of the law of a country or territory other than Scotland or confer or remove functions exercisable otherwise than in, or as regards Scotland, in contravention of section 29(2)(a). In short, it was said, it would remove the power of a liquidator of a company being wound up in England to disclaim a CARs licence forming part of the onerous property of the company (1986 Act, s 178). However, the CARs relate only to activities in Scotland. Whether, and in what circumstances, a licence may be granted or surrendered are matters which form part of the law of Scotland. The effects of the CARs may be felt by persons elsewhere, such as liquidators of companies being wound up in England which have a CARs licence, but that does not mean that the CARs form part of the law of England, nor that they confer or remove functions exercisable otherwise than in or as regards Scotland. The CARs do not amend section 178 of the Insolvency Act 1986, nor do they form part of the law of any country other than Scotland. Thus, the liquidators' submissions under section 29(2)(a) are misconceived.

[150] When considering whether a provision relates to a reserved matter, the court must determine this "by reference to the purpose of the provision, having regard (among other things) to its effect in all the circumstances" (section 29(3)). The purpose of a provision is different from its effect. The effect of a provision is merely one of the circumstances to which the court must have regard when determining the purpose.

[151] It is important to bear in mind the observation of Lord Walker in Martin v Most 2010 SC (UKSC) 40 (at para [49]) that:

"Section 29(2)(b) prohibits legislation by the Scottish Parliament which 'relates to' reserved matters. That is an expression which is familiar in this sort of context, indicating more than a loose or consequential connection, and the language of section 29(3), referring to a provision's purpose and effect, reinforces that."

This was cited with approval by Lord Hope in Imperial Tobacco Ltd v Lord Advocate 2013 SC (UKSC) 153 (at para [16]) where he referred to Lord Rodger's observation in Martin v Most (supra at para [75]) that:

"the clearest indication of its purpose may be found in a report that gave rise to the legislation or in a report from one of the committees of the Parliament. But it may also be clear from its context. As is the case when any other statute is being construed, the context will be relevant to understanding the meaning of the words used by the 1998 Act."

In Martin v Most (supra), Lord Hope had considered the scheme of devolution and observed (para [11] et seq under reference to Gallagher v Lynn [1937] AC 863) that it was not possible, if a workable system was to be created, for reserved and devolved areas to be divided into precisely defined, watertight compartments. Some degree of overlap is inevitable. The rule required an examination of the statute that was impugned to ascertain its "pith and substance", or its "true nature and character" to determine whether it was legislation "with respect to" matters that were in the prohibited or permitted sphere.

[152] An echo of this approach is to be found in the debate in the House of Lords on the Scotland Bill (Hansard HL Deb 21 July 1998 column 819), in which Lord Sewel for the Government, having referred to the "pith and substance" test in Gallagher v Lynn (supra), observed as follows:

"'If, on the view of the statute as a whole, you find that the substance of the legislation is within the express powers, then it is not invalidated if incidentally it affects matters which are outside the authorised field'. In other words, it is intended that any question as to whether a provision in an Act of the Scottish parliament 'relates to' a reserved matter should be determined by reference to its 'pith and substance' or its purpose and if its purpose is a devolved one then it is not outside legislative competence merely because 'incidentally it affects' a reserved matter. A degree of trespass into reserved areas is inevitable because reserved and other areas are not divided into neat watertight compartments.

Clause 28(4) and (5) were intended to achieve this. Clause 28(5) provides that a provision does not relate to reserved matters merely because it makes provision for purposes relating to devolved matters which incidentally affects reserved matters. However, there may be some doubt as to whether this provision is sufficient because it does not make it clear that in determining whether a provision relates to a reserved matter the court should determine this by reference to the purpose of the provision in question. In the absence of such a provision, it is possible that the courts would apply a literal approach and hold that a provision 'relates' to a reserved matter merely if it affects it. If the courts were to adopt this approach, this would severely fetter the Scottish parliament's ability to legislate about subjects which are, in terms of the White Paper, to be devolved.

For example, the White Paper intended that pollution control should be devolved. However, an Act of the Scottish parliament containing provisions about water pollution from coal-mines or dust from open-cast coal-mining would affect the reserved matter of coal-mining. If the courts were to apply a literal approach, they could hold that these provisions related to the reserved matter and would therefore be beyond the legislative competence of the Scottish parliament. This would make a nonsense of the devolution of pollution control. The same point applies, for example, to planning or local government or even the courts and the administration of justice.

Amendment No. 153 is designed to solve this problem by providing expressly that any question as to whether a provision in an Act of the Scottish parliament 'relates to' a reserved matter is to be determined by reference to its purpose. The courts can determine that a provision is for a permitted purpose, even if, as an ancillary matter, it affects reserved matters. In ascertaining the purpose of the provision, the courts are required to have regard, among other things, to its effect in all the circumstances. In my example of pollution control, the courts would take into account that the pollution control provision had an effect upon the reserved matter of coal-mining but may nevertheless consider that its purpose was about pollution control and not about coal-mining.

In the vast majority of cases the ancillary effects of such provisions upon reserved matters are likely to be minor but in some cases they could be significant. Whether the effect of a provision on reserved matters is minor or significant, if it is to be within the powers of the Scottish parliament it must in every case satisfy the test that its purpose is a devolved one".

The foregoing extract, whilst substantial, is useful in shedding light on the exercise which must be conducted in the present case.

[153] In considering the purpose of the CARs, it is relevant to consider the explanatory note attached to the regulations, and the powers under which they were made. The CARs were made under the Water Environment and Water Services (Scotland) Act 2003, which transposed the European Parliament and Council Directive 2000/60/EEC. They also implemented, in part, Council Directives 80/68/EEC, and 2006/118/EC on the protection of ground water and on environmental quality standards. They provide a comprehensive scheme which contains a general prohibition against the carrying on of any controlled activity except in so far as it is authorised under the CARs and is carried out in accordance with that authorisation. A controlled activity includes those liable to cause pollution of the water environment, abstraction of water from the water environment, works in surface water or wetlands and any other activity which directly or indirectly has or is likely to have a significant adverse impact on the water environment. As already detailed, they contain provisions for SEPA to grant an authorisation and to enforce the conditions of any authorisation. There are provisions for review, variation and transfer of authorisations, and for surrender, suspension and revocation of authorisations. In short, there is little difficulty in reaching the conclusion that the "pith and substance" of the CARs is the protection of, and control of activities in, the water environment.

[154] There are provisions within the CARs which have a practical effect on liquidators of companies (whether being wound up under the law of Scotland or England) which hold CARs licences; notably, the express inclusion of a liquidator within the definition of a "responsible person" (reg 2). Although the effect of a provision is a factor in considering its purpose, it is not the only factor. Moreover, it would be wrong to have regard only to the effect of the CARs on liquidators. It is necessary to have regard to their overall effect in all the circumstances. Ultimately, the CARs have practical effects for a wide variety of persons carrying on, or wishing to carry on, any activity which directly, or indirectly, has or is likely to have a significant adverse impact on the water environment.

[155] The purpose of the provision in relation to the definition of a "responsible person" is to facilitate identification of the person responsible for operating the activities and to ensure that there is continuity and certainty of responsibility. It is necessary both to avoid the creation of a lacuna in the effective coverage of the legislative regime and to prevent circumvention of the EU obligations.

[156] The purpose of the CARs as a whole, and the provisions relating to a liquidator in particular, is an environmental one. Neither the CARs as a whole, nor the provisions relating to liquidators, have as their purpose an insolvency objective. The effect on liquidators of companies possessing a CARs licence is no more than a loose or consequential connection. In all the circumstances, those provisions of the CARs which are said to restrict the power of a liquidator cannot be said to relate to reserved matters. They are, accordingly, not outwith the competence of the Scottish Parliament by reason of section 29(2)(b) of the 1998 Act.

[157] For the purposes of section 29(2)(c), the exercise of determining whether the CARs modify any enactment or rule of law, the subject-matter of which is a reserved matter (sch 4, 1998 Act) must include the identification of the enactment or rule of law which is being modified. Lord Hope shed some light on this exercise in Martin v Most (supra), where he observed (at para [34]):

"Identifying the rule is a crucial step towards reaching the right answer to the question whether the modification that is proposed is within the competence of the Scottish Parliament or must be dealt with at Westminster. ...[U]nlike section 29(3) and (4), para 2 of the schedule concentrates on the rule of law that is being modified by the enactment and makes no mention of the purpose of the modification ... But the purpose of the enactment may nevertheless be referred to in order to identify the rule of law that is being modified".

There is no suggestion in the CARs of any intention to amend or repeal any part of the Insolvency Act or the Insolvency Rules. The CARs do not create a preferential debt. Whilst there may be practical effects in a liquidation as a result of the CARs, no change to any enactment, nor to any legal rule, may be discerned.

[158] In any event, even if there were a modification to the insolvency regime, that would not be a modification of the law on reserved matters. It is too wide an assertion that "insolvency" is a reserved matter. While head C2 of schedule 5 to the 1998 Act is headed "Insolvency", that is merely a heading. In fact, it is only concerned with corporate insolvency; personal insolvency, by means of sequestration, is not a reserved matter. There has been no modification of the rules of law in relation to any of the specific items listed under head C2. There has been no modification of the rules for payment of preferential debts, nor has there been any modification of Rules 4.66 or 4.67 of the Insolvency (Scotland) Rules.

[159] Moreover, the prohibition on modification of the law on reserved matters applies in relation to a rule of Scots private law (whether or not contained in an enactment) only to the extent that it is special to a reserved matter (sch 4, para 2(3)). There is an obvious difficulty in applying this provision where it is not clear what enactment or rule of law it is suggested has been modified. As Lord Hope also observed in Martin v Most (supra at para [38]):

"In case of doubt, the words 'to the extent only' suggest that a generous application of para 2(3) which favours competence is to be preferred as opposed to one which applies it narrowly."

The purpose of regulations 2 and 27 of the CARs is to secure that the environmental objectives of the regulations are met, by providing an orderly means for bringing controlled activities to an end and for there to be a responsible person in control of the activities throughout. In light of this, it is difficult to identify any modification of a rule of law that is special to a reserved matter.

[160] For the purposes of section 29(2)(c), modifications to the law on reserved matters are permissible to the extent that they are incidental to, or consequential on, a provision made (whether by virtue of the Act in question or another enactment) which does not relate to reserved matters, and where they do not have a greater effect on reserved matters than is necessary to give effect to the purpose of the provision (sch 4, para 3(1)). A similar provision was considered recently in Attorney General v National Assembly for Wales Commission [2013] 1 AC 792, in which Lord Neuberger commented (at para 49) that:

"The answer to the question whether a particular provision in an enactment is 'incidental to, or consequential on' another provision, obviously turns on the facts of the particular case. The answer may to some extent be a question of fact and degree, and it should turn on substance rather than form, although, of course, in any well drafted Bill, the substance will be reflected in the form, at least in relation to that sort of question".

Lord Hope agreed with Lord Neuberger and stated (at paras 82 - 83) that the words make it clear that the interpretative exercise to which it points is one of comparison:

"How significant is the removal of the pre-commencement function, when it is seen in the context of the Act as a whole? If the removal has an end and purpose of its own, that will be one thing. It will be outside competence. If its purpose or effect is merely subsidiary to something else in the Act, and its consequence when it is put into effect can be seen to be minor or unimportant in the context of the Act as a whole, that will be another. It can then be regarded as merely incidental to, or consequential on, the purpose that the Bill seeks to achieve. The provision in question meets this test. So it is within competence."

Applying this test to the present circumstances, as previously stated, the CARs have an effect on the practicalities of insolvency. However, more than that is required in order to place them beyond the devolved competence of the Scottish Parliament. If, contrary to the views expressed above, the CARs have modified the law on reserved matters (and in particular any of those aspects of the law of corporate insolvency which are listed under head C2 of schedule 5 to the 1998 Act), it remains the case that any such modifications are incidental to, and consequential on, provisions in the CARs relating to environmental matters, which are not reserved, and only to an extent that is necessary to give effect to the environmental purpose of the CARs. Having regard to each of the factors discussed above, the CARs do not go beyond the devolved competence of the Scottish Parliament as a consequence of section 29(2)(c) of the 1998 Act.

[161] In all the circumstances, neither the CARs in general, nor regulations 2 and 27 as they apply to liquidators in particular, are outwith the devolved competence of the Scottish Parliament. Nor can they be read in such a way as to be outside legislative competence. That being so, the provisions of section 101 of the 1998 Act do not apply and it is not necessary to read the provisions narrowly in order to bring them within competence. The Lord Ordinary fell into error in reaching the contrary view. For completeness, and in light of the court's conclusions as to devolved competence, it is not necessary to consider whether the 1998 Act should be read subject to any saving provision (supra) in order to secure implementation of EU law in devolved areas.

Directions

[162] The court will accordingly recall the interlocutor of the Lord Ordinary dated 11 July 2013 and direct that the liquidators do not have the power to "abandon (otherwise disclaim)" the sites or the statutory licenses referred to in the prayer of the Note.