29.

WOOLFSON v. STRATHCLYDE REGIONAL COUNCIL

 

 

Compulsory purchase — Compensation — Compensation for disturbance — “Occupier” of acquired premises — Occupier a trading company controlled by the owner of the  premises — Whether the owner entitled to compensation — Land Compensation (Scotland) Act 1963 (c. 51), s. 12)2) and (6).

 

A retail shop setting bridal clothing was compulsorily acquired in 1968. The shop was made up of different units of property all forming the one shop floor area. W owned some of the units and the remainder belonged to a company, S, set up to enable shares to b e transferred within W’s family, W owning the majority shares therein. The actual retail business in the shop had been carried on for some years up to the date of acquisition by a limited company. C. with its own registered trade name and with 1.000 issued ordinary shares, of which W owned 999 and his wife one. W devoted his whole life to the business of the company and was the moving force behind it. He was nominally sole director, controlling staff appointments and was the moving force behind it. W’s wife was the company buyer, and along with W provided the  [*160]  whole expertise behind it. Company C appeared in the valuation roll as the occupier and was assessed as such for taxation purposes. At the date of acquisition there was no formal lease of die shop premises between company C and either W or S although such had at one time been contemplated.

 

W and S subsequently lodged a joint claim with the lands tribunal for £80,000 as compensation for the value of the heritage and a further £95,469 in respect of disturbance. The Second Division affirming the decision of the lands tribunal, found that the occupier of the premises was company C, which had a legal persona distinct from that of W and that company C had not been a mere shell or façade but a company de facto engaged in business in accordance with its memorandum of association. W and S appealed to the House of Lords.

 

Held, on the facts that there was no basis consonant with principle upon which the corporate veil could be pierced to the effect of holding W to be the true owner of C’s business or of the assets of S; and appeal dismissed.

 

Salomon v. Salomon & Co. Ltd. [1897] AC. 22 applied; D.H.N. Food Distributors Ltd. v. Tower Hamlets London Borough Council [1976] 1 W.L.R. 852 distinguished.

 

Appeal from Interlocutor of Second Division

 

(Reported ante 1977 S.L.T. 60)

 

The appellants (claimants) appealed to the House of Lords.

 

The appeal was heard before Lord Wilberforce, Lord Fraser of Tullybelton, Lord Russell of Killowen and Lord Keith of Kinkel on 16 and 17 January 1978.

 

On 17 January 1978 their Lordships took time for consideration.

 

Cases referred to:

Caddies v. Harold Holdsworth & Co. (Wakefield) Ltd., 1955 S.L.T. 133; 1955 S.C. 133; 1955 S.C. (H.L.) 27.

D.H.N. Food Distributors Ltd., v. Tower Hamlets London Borough Council [1976] 1 W.L.R. 852.

Meyer v. Scottish Co-operative Wholesale Society Ltd., 1958 S.L.T. 241; 1958 S.C. (H.L.) 40.

Salomon v. Salomon & Co. Ltd. [1897] A.C. 22.

Smith, Stone & Knight Ltd. v. Birmingham Corporation [l939] 4 All E.R. 116.

Tunstall v. Steigmann [1962] 2 Q.B. 593.

 

On 15 February 1978 the House dismissed the appeal.

 

Lord Wilberforce. — l have had the advantage of reading in draft the speech to be delivered by my noble and learned friend Lord Keith of Kinkel. I agree with it, and for the reasons he gives would dismiss the appeal.

 

Lord Fraser of Tullybelton. — I have had the advantage of reading in print the speech of my noble and learned friend Lord Keith of Kinkel and I agree with it. For the reasons stated in it, I also would dismiss this appeal.

 

Lord Russell of Killowen. — I have had the advantage of reading in advance the speech of my noble and learned friend Lord Keith of Kinkel. I agree with it and with his conclusion that this appeal be dismissed.

 

Lord Keith of Kinkel. — This is an appeal against an interlocutor of the Second Division of the Court of Session affirming the decision of the Lands Tribunal for Scotland upon a question relating to compensation for the compulsory acquisition of land.

 

The facts of the case, as set out in the special ease stated by the lands tribunal for the opinion of the Court of Session, are incorporated at length into the opinion of the Lord Justice-Clerk. It is unnecessary for me to rehearse them in detail, and it will suffice to mention those that are particularly material. A compulsory purchase order made in 1966 by Glasgow Corporation, the respondents’ predecessors as highway authority in that city, provided for the acquisition of certain shop premises in St George’s Road, the date of entry being 29 January 1968. Nos. 57 and 59-61 St George’s Road were owned by the first-named appellant Solomon Woolfson (“Woolfson”) and Not. 53-55 were owned by the second-named appellant Solfred Holdings Ltd. (“Solfred”), the shares in which al all material times were held as to two-thirds by Woolfson and as to the remaining one-third by his wife. The whole of the shop premises was occupied by a company called M. & L. Campbell (Glasgow) Limited (“Campbell”) and used by it for the purpose of its business as costumiers specialising in wedding garments. The issued share capital of Campbell was 1,000 shares, of which 999 were held by Woolfson and one by his wife. Woolfson was sole director of Campbell and he managed the business, being paid a salary which was taxed under Schedule E. His wife also worked for Campbell and provided valuable expertise. Campbell was throughout shown in the valuation roll as occupier of the shop premises, but its occupation was not regulated by lease or any other kind of formal arrangement. Draft leases were at one time prepared, bill they were never put into operation. From 1952 until 1963, when Schedule A taxation was abolished, payments by way of rent for Nos. 59-61 51 George’s Road were credited to Woolfson in Campbell’s books. No rent was ever paid or credited in respect of No. 57 St George’s Road. From 1962 till 1968 Campbell paid rent to Solfred in respect of Nos. 53-55 St George’s Road. Various financial arrangements were entered into between Woolfson and Campbell, but it is unnecessary to go into the details of these. There can be no doubt, and it is not now disputed by the appellants, that Campbell was throughout the occupier of the shop premises and that the business carried on there was that of Campbell.

 

la these circumstances, the appellants jointly claimed a sum of £80,000 as compensation for the value of the heritage under s. 12(2) of the Land  [*161]  Compensation (Scotland) Act 1963 and a further sum of £95.469 in respect of disturbance under s. 12 (6) of that Act. The lands tribunal held a preliminary proof restricted to the matter of the appellants’ right to claim compensation for disturbance, and on 13 May 1975 issued an order finding that the appellants had no such right. A special case was at their request stated for the opinion of the Court of Session, and on 3 December 1976 the Second Division (Lord Justice-Clerk Wheatley. Lords Johnston and Leechman) affirmed the decision of the lands tribunal.

 

The appellants’ argument before the lands carried on in the premises was truly that of the appellants, which Campbell conducted as their agents, so that the appellants were the true occupiers of the premises and entitled as such to compensation for disturbance. Reliance was placed on the decision of Atkinson J. in Smith, Stone & Knight Ltd. v. Birmingham Corporation. Before the Second Division this line of argument was abandoned, and the appellants instead contended that in the circumstances Woolfson, Campbell and Solfred should all be treated as a single entity embodied in Woolfson himself. This followed the refusal by the court to allow Campbell and Mrs Woolfson to be joined as additional claimants in the proceedings. It was argued, with reliance on D.H.N. Food Distributors Ltd. v. Tower Hamlets London Borough Council,. that the court should set aside the legalistic view that Woolfson, Solfred and Campbell were each a separate legal persona, and concentrate attention upon the “realities” of the situation to the effect of finding that Woolfson was the occupier as well as the owner of the whole premises. This argument was rejected by the court for the reasons given in the opinion of the Lord Justice-Clerk. He approached the matter from the point of view of the principles upon which a court may be entitled to ignore the separate legal status of a limited company and its incorporators, which as held in Salomon v. Salomon & Co. Ltd. must normally receive full effect in relations between the company and persona dealing with it. He referred to a passage in the judgment of Ormerod L.J. in Tunstall v. Steigmann, at p. 601, to the effect that any departure from a strict observance of the principles laid down in Salomon has been made to deal with special-circumstances when a limited company might well be a facade concealing the true facts. Having examined the facts of the instant case, the Lord Justice-Clerk reached the conclusion that they did not substantiate but negatived the argument advanced in support of the “unity” proposition and that the decision in the D.H.N. Food Distributors case was distinguishable.

 

It was maintained before this House that the conclusion of the Lord Justice-Clerk was erroneous. In nay opinion the conclusion wan correct, and I regard as unimpeachable the process of reasoning by which it was reached. I can see no grounds whatever, upon the facts found in the special cane, for treating the company structure as a mere façade,, nor do I consider that the D.H.N. Food Distributors case is, on a proper analysis, of assistance to the appellants’ argument. The position there was that compensation for disturbance was claimed by a group of three limited companies associated in a wholesale grocery business. The parent company. D.H.N., carried on the business in the premises which were the subject of compulsory, purchase. These premises were owned by Bronze, which had originally been the wholly-owned subsidiary of a bank which had advanced money for the purchase of the premises, but which had later become the wholly-owned subsidiary of D.H.N. Bronze and the same directors an D.H.N. and the premises were its only asset. It carried on no activities whatever. The third company, also a wholly-owned subsidiary of D.H.N., owned as its only asset the vehicles used in the grocery business, and it too carried on no operations. The compulsory acquisition resulted in the extinction of the grocery business, since no suitable alternative premises could be found. It was held by the Court of Appeal (Lord Denning M.R., Goff and Shaw LL.J.) that the group was entitled to compensation for disturbance as owners of the business. The grounds for the decision were (1) that since D.H.N. was in a position to control its subsidiaries in every respect, it was proper to pierce the corporate veil and treat the group as a single economic entity for the purpose of awarding compensation for disturbance (2) that if companies were to be treated as separate entities, there was by necessary implication from the circumstances an agreement between D.H.N. and Bronze under which the former had an irrevocable licence to occupy the premises for as long as it wished, and that this gave D.H.,N. a sufficient interest in the land to found a claim to compensation for disturbance; and (3) (per Goff and Shaw L.L.J.) that in the circumstances Bronze held the legal title to the premises in trust for D.H.N., which also sufficed to entitle D.H.N. to compensation for disturbance. It is the first of those grounds which alone is relevant for present purposes, I have some doubts whether in this respect the Court of Appeal properly applied the principle that it is appropriate to pierce the corporate veil only where special circumstances exist indicating that it is a mere fa?ade concealing the true facts/Further, the decisions of this House in Caddies v. Harold Holdsworth & Co. (Wakefield) Ltd. and Meyer v. Scottish Co-operative Wholesale Society Ltd., which were founded on by Goff L.J. in support of this ground of judgment and, as to the first of them, to some extent also by Lord Denning M.R., do not, with respect, appear to me to be concerned with that principle. But however that may be I consider the D.H.N. Food case to be clearly distinguishable on its facts from the present case. There the company that owned the land was the wholly-owned subsidiary of the company that carried on the business. The latter was in complete control of the situation as  [*162]  respects anything which might affect its business, and there was no one but itself having any kind of interest or right as respects the assets of the subsidiary. Here, on the other hand, the company that carried on the business, Campbell, has no sort of control whatever over the owners of the land,. Solfred and Woolfson. Woolfson holds two-thirds only of the shares in Solfred, and Solfred has no interest in Campbell. Woolfson cannot be treated as beneficially entitled to the whole share,. holding in Campbell, since it is not found that the one share in Campbell held by his wife is held as his nominee. In my opinion there is no basis consonant with principle upon which on the facts of this case the corporate veil can be pierced to the effect of holding Woolfson to be the true owner of Campbell’s business or of the assets of Solfred.

 

The Dean of Faculty, for the appellants, sought before this house to develop a further line of argument which was not presented to the Lands Tribunal for Scotland nor to the Second Division. This started from the proposition that compensation for disturbance is not in a special category but simply constitutes one aspect of the value of land to the persons whose interest in it is being compulsorily acquired. This was supported by a copious citation of authority, but I do not consider the proposition as such to be in any doubt. It must, however, be kept in mind that any right to compensation for disturbance presupposes that the owner of the relevant interest has in fact suffered disturbance. Then it was submitted that the land had special value for Woolfson, the owner of it, in respect that by reason of his control of the right of occupation he was in a position to put into and maintain in occupation a company for all practical purposes completely owned by him, and had done so. The carrying on by the company of its business conferred substantial benefits to Woolfson. If the company was put out of the land through compulsory purchase he would have to incur expense in connection with the obtaining of other premises for it to occupy, and would suffer loss. Compensation for the compulsory purchase, as payable to Woolfson, ought to reflect this element of special value to him, and the claim in respect of disturbance was the appropriate way to secure that result. The circumstance that Solfred owned a substantial part of the shop premises was for purposes of this argument dismissed as irrelevant, on the basis that the part of the premises owned by Woolfson was essential to the carrying on of Campbell’s business, so that without it the business would have to be carried on, if at all, at some completely different place.

 

This line of argument was unsupported by authority and in my opinion it also lacks any foundation of principle. The fact of the matter is that that Campbell was the occupier of the land the owner of the business carried on there. Any direct loss consequent on disturbance would fall upon Campbell, not Woolfson. In so far as Woolfson would suffer any loss, that loss would be suffered virtue of his position as principal shareholder in Campbell, not by virtue of his position as owner of the land. His interest in the loss is at best an indirect one, no different in kind from that of his wife, whose interest as a shareholder, though a minor one, cannot be completely ignored, or that of creditors of Campbell. The argument is in my opinion unsound, and must be rejected.

 

My Lords, for these reasons, I would dismiss the appeal.

 

Counsel for Appellants, Dean of Faculty (Mackay, Q. C.). Mackay; Solicitors, Drummond & Co., W.S., Levy & McRae, Glasgow, Oswald Hickson Collier & Co., London. — Counsel for Respondents, Cullen, Q. C., J. R. Smith; Solicitors, Simpson & Marwick, W.S., Martin & Co., London.

 

M. G. T.