4.2.1 Scotland: a tale of two judgments

The central issue of this paper – protecting the performance interest of grantees – has received an extraordinary amount of attention in Scotland. The debate was sparked by Sharp v Thomson, in which the buyers of immovable property had not yet completed delivery before a floating charge, that covered all of the ‘property and undertaking’ of the seller (s. 462(1) of the Companies Act 1985), crystallised.1 It was held by the House of Lords that the buyers were triumphant in this conflict. It was, however, unclear exactly why they were triumphant. There were two explanations: explanation A entailed that the buyers had acquired some sort of proprietary interest in the immovable property prior to completion of the delivery. This reasoning seems hard to unite with a traditio transfer system such as Scots law, but can be explained by the tendency of the House of Lords to take common law doctrines, such as the VPCT, into consideration, even when deciding on Scots law. Explanation B centered on a narrow interpretation of ‘property and undertaking’: this would include only what the company uses in its day-to-day business dealings, and not literally ‘all its property’ in a legal sense. The main arguments against explanation A were the lack of clarity in regard to exactly when buyers receive their proprietary interest, and the lack of publicity of the buyers’ interest. However, if explanation A were correct, it would entail that buyers of immovable property were also protected from, e.g., insolvency of the seller, if they fail to complete delivery prior to the sellers’ bankruptcy. Several years later, exactly these facts (interest of buyer conflicts with insolvency of the seller) occurred (Burnett’s Trustee v Grainger).2 The House of Lords held that the buyers were in this instance not protected, from which it followed that explanation B of the Sharp v Thomson judgment had been the correct one. In several reports following these judgments, Scottish academics submitted that because of Sharp’s narrow interpretation, there was a lack of transactional security for grantees involved in a transfer of land, and that “there is now a clear need to improve the position of grantees who act in good faith and with reasonable diligence”.3

The considerations of the Scottish law commission are especially relevant for this paper, because they provide a clear insight into the central problem of this paper – the problems that a traditio transfer system gives rise to in the context of mutual contracts and the performance interest of both parties – from the perspective of academics that, just like the author of this paper, have a civil law oriented background whilst being familiarised with the common law solution to this problem (the VPCT). This section will therefore use the general structure of the first report as a backbone for discussing the question as to whether, and if so to what extent, vacuum instruments deserve a stronger effect and/or a bigger scope of application.