I am loath to add more to the blog posts, the web comments, the newspaper stories, and the television and radio reports on yesterday’s case of Clark and Whitehouse (administrators of Rangers FC plc) as applicants seeking directions from the court in the context of the agreement between Ticketus and Rangers but there are one or two points that are worth making.
The deal between Rangers and Ticketus involves two transactions: a sale of rights to season tickets; and an agreement (on the premise that the sale was valid) appointing Rangers agents to sell the season tickets and to put the proceeds of sales into a ring-fenced account operated by Rangers for Ticketus. Under English law Ticketus - on paying Rangers on conclusion of the sale – would have a right in the seats the season tickets related to. This right would prevail over unsecured creditors (such as the taxman) in the insolvency of Rangers. This results from equity – a device of English law which appears to an outsider to be there to reward ineptitude. If you don’t do everything you’re meant to do equity steps in to protect you anyway with a shrug, and a “well you must have meant to do it so we’ll treat it as if you have done it”. The agreements between Rangers and Ticketus were written under English law and it appears Ticketus assumed that that was an end of things. The imperialist nature of English law assumes that its court orders and law can apply worldwide (see blog posts passim) – scant thought (if any) seems to have been given to one crucial factor.
I appreciate this may come as news to some readers versed in english law, but Ibrox stadium is in Glasgow. And Glasgow is a city in Scotland. The seats in the stadium are by a remarkable coincidence also found in Scotland. Any debts that arise in relation to the season tickets arise in scotland. Now, scots law doesn’t have an odd system of equity which steps in to offer temporary protections. Scots law recognises two primary types of right: personal rights; and real rights. A personal right is in summary a right against a person allowing you to sue that person and is accompanied by an obligation on the part of that person. A typical example would arise from a contract. Consider, for example, a contract of loan. If I lend money to Ted, Ted has an obligation to pay me the money back, and I have a right to sue Ted for the money. Now, personal rights are only as strong as the person that owes the obligation. If I have a right to sue Ted, and Ted goes bust I am not necessarily going to get my money back. A personal right gives a creditor no entitlement to the debtor’s assets. It only gives the creditor a right to sue the debtor. And in insolvency that resolves itself into a right to claim in the insolvency of the debtor for the unpaid amount – along with every other punter who is owed money by the debtor.
Personal rights can be compared with real rights. Real rights were created by roman law centuries ago. Real rights are rights in assets. Your ownership of an asset is a real right. But there are others. For example, in Scotland, a tenant holding under a lease has a real right. Or a creditor in a standard security (the technical Scottish term for what punters refer to as mortgages) has a real right. To explain that one, in the example above assume that I loaned Ted money but was worried that Ted wouldn’t pay me back. I could have said to Ted (as banks typically say to people borrowing substantial sums of money from them) – I will not lend you the money unless you give me a right in your house. This right in the house is a standard security. Now, how is that better than a personal right? Well a real right is a right in a specific asset. Thus, if Ted buggers off and sells his house I would still have the security in the house, whoever the new owner was. Additionally, the real rights have priority in the event of the insolvency of the debtor. So if Ted goes bust that has no impact on the real right. It remains as powerful as it was before. If that real right is a security (such as a standard security) the creditor typically has power to sell the asset without having to involve any other creditor, and if the asset is sold during insolvency the real right ensures that the creditor gets first cut when the proceeds of sale are divided out. In summry then being a right in an asset a real right is stronger than a personal right.
Scotland, like much of western Europe, accepts real rights. The terminology seems unfamiliar in English law (although you see some commentators using it, it doesn’t seem to appear in the case reports – other than where a judge disparagingly queries how rudimentary the system is in comparison with the genius of English law, ignoring the fact that the bulk of western economies operate just such a rudimentary system which offers certainty and avoids superfluous litigation). However, Scotland only recognises a limited number of real rights. These real rights, funnily enough, don’t include rights held by season ticket holders on an irregular basis when football matches happen to take place.
Much to the astonishment of no-one yesterday then Lord Hodge held that Ticketus do not have a real right in the seats. If they don’t have a real right at best they have a personal right – a contractual right to use the seat. This contractual right is pretty worthless if Rangers go into liquidation – because all that Ticketus will be left with is a claim for damages for what they have lost (ie the flipping great wadges of cash they paid on the assumption that English law solved all their problems).
So with no rights in the seats themselves (which they magically would have had under English law) what did Ticketus get. Well they have bought season tickets that do not yet exist. Now there’s one problem with buying something that doesn’t exist. How do you get ownership of it? You can’t get ownership of it (at the earliest) until the thing exists. Ticketus then do not have ownership of any of the future season tickets that don’t exist yet. But what are these season tickets? – the season tickets are rights to occupy the seats exercisable against Rangers and these rights only arise when the season ticket is issued. Now in English law the magic of equity would appear to provide that the instant these tickets came into existence they would be immediately owned by Ticketus and the agency agreements would allow Rangsers to sell them. Trouble for Ticketus is that while they entered all of their agreements under English law we’re not in England. The season tickets arise under Scots law. And in Scots law there are difficulties (a) with selling future rights at all (because the sale of a right requires notification to the debtor to be effective, and we don’t know who the debtor is until the right exists; and (b) with creating trusts over future rights (which is what the agency agreement purports to do). You can only transfer an asset into the trust (and therefore validly create the trust) when the asset comes into existence.
So Ticketus only have a contractual right against Rangers. This will give them only a claim in insolvency if Rangers go into liquidation.
Now hidden away in an early part of Lord Hodge’s judgment is a suggestion that the agreement between Ticketus and Rangers might be struck down because under company law agreements are void if a company provides financial assistance in order to buy its own shares. However, this is a bit of a red herring to some extent. if the contract survives, and Rangers do not go into liquidation, then Rangers will have to implement that contract in future, or breach and risk liability in damages. If the contract is struck down then the money Ticketus paid will become immediately recoverable from Rangers because Rangers will have received money with no legal basis for receipt (in legal terms Rangers would be unjustifiably enriched). In the event of liquidation of Rangers whether or not the Ticketus contract is valid is completely irrelevant. (note)
These are just some rough thoughts on the first half of the judgment. No doubt others will look at the first half and the second half in much more detail elsewhere.
(note at 5.13 pm - after an interesting discussion on twitter with James Connolly, Glasgow Caledonian University, worth noting that where a contract is struck down for illegality there are issues about whether any claim can be made at all. Scots law on this is not as clear as it might be. The courts look at whether there is “turpitude” on the part of the parties. The nuances of unjustified enrichment, illegal contracts and the like are for another blog, or another day.