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OUTER HOUSE, COURT OF SESSION
[2007] CSOH 133
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A488/05
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OPINION OF LORD MACKAY
OF DRUMADOON
in the cause
ACCOUNTANT IN
BANKRUPTCY as Trustee on the Sequestrated estates of GEORGE BROWN
Pursuer;
against
WINIFRED MARGARET
BROWN
Defender:
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Pursuer: Duthie; Balfour & Manson
Defender: Duthie; Semple Fraser
Minuter: In person
27 July 2007
Introduction
[1] This
action has been raised by the Accountant in Bankruptcy, in his capacity as
trustee on the sequestrated estates of George Brown ("the debtor"). On 31
October 2003, the pursuer was appointed the permanent trustee on
the estates of the debtor by interlocutor of the Sheriff at Cupar. The petitioning creditor in the proceedings
which gave rise to the pursuer's appointment was Stuart Wilkie ("the minuter"),
who has lodged a minute of sist in these proceedings. In terms of that minute
he seeks to be sisted as an additional pursuer in the action. The defender in the action is Winifred
Margaret Brown, who is the spouse of the debtor, George Brown.
[2] The
action was raised by summons signetted on 28 July 2005, a few months short of the second
anniversary of the pursuer's appointment.
In the summons, the pursuer seeks production and reduction of a
disposition of heritable property at 10 West End,
St Monans, Fife ("the subjects"). The subjects are
a dwellinghouse. That dwellinghouse has been, since it was first acquired by
the debtor and the defender, their family home.
[3] The
pursuer founds on the provisions of section 34 of the Bankruptcy (Scotland)
Act 1985 ("the 1985 Act"), the contention being that the disposition was a
gratuitous alienation of the debtor's property. The disposition was granted by
the debtor and the defender in favour of the defender alone. It is dated 25 February 2001 and was recorded in
the General Register of Sasines on 6
March 2001. There is a
further conclusion in the summons seeking the expenses of the action.
[4] On
8 December 2005 Lord
Glennie granted decree in absence in favour of the pursuer. That decree was recalled by interlocutor of
Lord Macphail dated 16 December
2005. The open record was
lodged late on 18 January 2006.
The action was then sisted, on 23
February 2006, on the unopposed motion of the defender. On 12 December 2006, having heard parties on
an opposed motion on behalf of the pursuer, the court recalled the sist and
further continued adjustment of the open record until 22 February 2007. On each of 22 February 2007 and 23 March 2007 a further four week continuation of the
adjustment of the open record was granted.
Both continuations were granted of consent of the pursuer and the
defender.
[5] On
23 April 2007 the
minuter, Stuart Wilkie, personally attended at the General Department. He lodged
his minute of sist and enrolled a motion in the following terms:-
" To lodge a
minute of sist to allow the petitioning creditor to become a named party and
pursuer in the action.
To dispense with
timeous intimation, as both other parties are fully aware who petitioning
creditor is and interest in the case.
To allow
petitioning creditor access to court action and continue in the process."
Whilst the minuter was present in
the General Department intimation of his motion was faxed to the firms of
solicitors acting for the pursuer and the defender.
[6] On
24 April 2007 the pursuer's solicitors intimated opposition to the minuter's motion and lodged
the appropriate form with the General Department. On the same day the defender's solicitors
lodged a joint minute (number 13 of process) and enrolled a motion that
the joint minute be received and that authority should be interponed thereto. That joint minute was signed by counsel for
each of the pursuer and the defender. The joint minute stated that the action
had settled extra judicially and that the parties moved the Court to assoilzie
the defender from the conclusions of the summons and to find no expenses due to
or by either party.
[7] When
the action first came before me on 25 April
2007 a copy of the open record, as adjusted on behalf of the
pursuer, was available. On that occasion
the minuter was personally present. The pursuer was represented by
Mr Duthie, Advocate, who at that stage appeared only on the instructions
of the pursuer's solicitors, Burness LLP.
[8] During
the course of the submissions I heard on 25 April 2007 it became apparent that the minuter had
not been allowed access to the court process.
For that reason, and also to give the minuter further time to prepare
his submissions and the documents which he wished to place before the court, I
continued the hearing until the following day.
In the course of doing so I indicated that the adjournment would give
the defender the opportunity to consider whether or not she wished to be
represented at the hearings of the two motions that were before the Court.
Three
preliminary matters
[9] On 26 April 2007,
the minuter and Mr Duthie again appeared.
On this occasion Mr Duthie was instructed by Burness LLP, on behalf of
the pursuer, and also by Semple Fraser, on behalf of the defender. On 26 April 2007 before turning to his
submissions on the substance of his motion that he be sisted as a party to the
action, the minuter raised three preliminary matters on which he sought orders
from the Court.
[10] The first of the orders he sought was to the effect that I, as a
Lord Ordinary sitting in the Outer House, had no locus to deal with the merits
of his principal motion, because that motion involved "issues" which were the
subject of dispute in other proceedings that were currently before the Inner
House. Those other proceedings were an appeal
to the Court of Session at the instance of the minuter against the decision of
the Sheriff at Cupar dated 31 August
2006 to refuse the minuter's application under section 54(3) of the
1985 Act to have the discharge of the debtor's sequestration deferred. The
debtor was the respondent in that appeal. Having heard the minuter's
submissions in respect of that motion, during which he sought to found on the
terms of annotations 38.8.3 and 38.8.3 to the Rules of Court, and
Mr Duthie in reply, I refused the motion. I did so for the simple reason
that the minuter's appeal to the Court of Session in his application under
section 54(3) of the 1985 Act was an entirely separate process to the present
action. In the appeal by the minuter, which was before the Inner House, the
debtor was the only other party. In the present action, the debtor is not a
party but both the pursuer and the defender are.
[11] In the event, whilst I had this matter at avizandum, the Inner
House dismissed the minuter's appeal against the decision of the Sheriff at
Cupar. They did so by interlocutor dated 7
June 2007 and refused leave to appeal to the House of Lords by
interlocutor dated 21 June 2007.
[12] The second preliminary motion which the minuter advanced was
that I should order that the defender in the present action could not be
represented by Mr Duthie during the hearing of his motion. That was because Mr Duthie
was also representing the pursuer, in his capacity as the trustee on the
sequestrated estates of the debtor. It was submitted that by accepting
instructions to act for both the pursuer and the defender, Mr Duthie had placed
himself in a situation involving a "conflict of interests". Having heard the minuter's submissions on
that matter and Mr Duthie's reply, I refused to make such an order.
Standing the nature of the principal motion which the minuter intended to
advance, namely that he be sisted as a party to the present action, and the
fact that both the pursuer and the defender wished to oppose that motion, I saw
no reason why I should pronounce an order that prevented Mr Duthie from
appearing for both of the existing parties when I dealt with the minuter's
motion. Whilst it is conceivable that different considerations might apply at a
later stage of these proceedings, for the purposes hearing the minuter's
principal motion, I saw no basis on which it would have been appropriate for
the Court to pronounce the order the minuter sought.
[13] The third preliminary matter raised by the minuter involved a
quite separate issue. I was invited to rule that it was not competent for the
defender to advance any arguments opposing the motion that he be sisted as a
party to the action, because the defender had not complied with the procedures
laid down in the Rules of Court for opposing that motion. In particular, the
minuter sought to found on the defender's failure to lodge with the General
Department written notification of her opposition to his motion or to give
written notice of the grounds of that opposition. What had happened was that
his motion had been enrolled on 23 April, had been opposed on behalf of the
pursuer on 24 April, and had come before the Court for the first time on 25
April, without the defender have given any written notice to the Court or to
him. The minuter founded on the
provisions of Rules of Court 23.4 (3), (4) and (5).
[14] Having heard the minuter's submissions on that preliminary
motion and Mr Duthie in reply I refused the motion. In doing so, under
reference to the provisions of Rule of Court 2.1, I granted the defender relief
from her failure to comply with the appropriate provisions of Rule of Court 23.
I considered that failure to be excusable having regard to the fact that the
minuter had not himself given the parties the appropriate intimation of his
motion, in terms of the Rules of Court, prior to enrolling that motion on 23
April 2007. When I refused this
particular motion, I indicated that I would allow Mr Duthie to proceed in
the manner he proposed, namely to represent the interests of both the pursuer
and the defender at the hearing before me on the substance of the minuter's
motion that he be sisted as a party.
[15] When I announced my ruling on this third preliminary motion,
the minuter immediately intimated that he wished to seek leave to reclaim
against my decision on that matter. I accordingly
heard the minuter's submissions on the application for leave to reclaim and
Mr Duthie in reply. I refused to grant the minuter's motion for leave to
reclaim. I took the view that my decision to make the order the minuter had sought
had fallen squarely within my discretion. In any event, it was, in my opinion,
in the interests of all parties that I should proceed to hear submissions upon
and to determine the minuter's principal motion.
Submissions
by minuter
[16] Turning to the merits of the minuter's principal motion, the
minuter's position can be summarised as follows. The pursuer had been appointed
as permanent trustee on the sequestrated estates of the debtor. The disposition
under challenge had been a gratuitous alienation. By delaying to raise an
action seeking reduction of the disposition, and in particular, by reason of
his conduct of and willingness to compromise the present action on the basis of
a payment of г70,000 by the defender, the pursuer had not acted in the best
interests of the unsecured creditors on the debtor's estate, who included
himself and his father, who was due approximately г33,000. Whilst the minuter
acknowledged that it is competent for a debtor to buy back assets out of his
sequestrated estates, at market value, he argued that the pursuer, in reaching
his decision to compromise the present action on the basis of a payment of
г70,000, had erred in law and had, in any event, decided upon an inappropriate
figure, which bore no proper relation to the current market value of the one
half share of the subjects which the debtor had conveyed to the defender by
means of a gratuitous alienation. In developing these submissions, the minuter
took me through the background to the debtor's sequestration, the history of
that sequestration and the history of the present action.
[17] As far as the background to the sequestration is concerned, I
was referred the Opinion of the Court dated 30 May 2003, in which the Inner
House had allowed the minuter's appeal against the interlocutor of the Sheriff
at Fort William, dated 28 October 1994, in an action for damages the
minuter had raised against the debtor. In terms of his interlocutor, the
sheriff had assoilzied the debtor. The Inner House recalled that decree of
absolvitor and granted decree in the minuter's favour for a principal sum of г83,072.31.
It was subsequently determined that the judicial interest payable in respect of
the principal sum should run from 1997. The minuter was also found entitled to
the expenses of the action. The decree pronounced by the Inner House in the
defender's favour was never satisfied by the debtor and had given rise to the
debtor's sequestration in which the minuter had been the petitioning creditor.
The minuter explained that he was due somewhere in the region of г170,000 from
the debtor's estates.
[18] As far as the history of events since the date of sequestration
was concerned, the minuter took me through certain items of correspondence
between himself and the pursuer, which he had lodged in process. These included letters which he had sent to
the pursuer dated 18 April 2005, 21 March 2006, 6 May 2006,
30 May 2006, 13 June 2006, 30 December 2006, 19 March 2007
and 23 April 2007. He also referred to letters, which he had received
from the pursuer, dated 4 December
2006, 14 March 2007
and 18 April 2007. The
minuter submitted that correspondence demonstrated that following the minuter raising
the action he had moderated his stance as to the basis upon which he was prepared
to settle the action with the defender. That had culminated in the pursuer
intimating to the minuter, in his letter of 18 April 2007, that he had agreed to settle the action
on payment of г70,000, without any provision for expenses. That was a lower
figure than the pursuer had previously been seeking.
[19] The minuter argued that on the basis of the approach to
settlement, which the pursuer had taken, in his capacity as trustee on the
estates of the defender, it was possible that he would receive nothing by way
of a dividend from the debtor's estates. It was clear that, out of the payment
of г70,000, the pursuer would require to pay his own legal expenses in
connection with the action. These amounted to a sum in excess of г33,000. It
was also clear from the letter of 18
April 2007 that in addition the pursuer would have to meet other
fees and outlays of the sequestration from the payment of г70,000.
[20] The minuter also argued that the pursuer had erred in law in his
approach to the prosecution of the action he had raised, and during his
negotiations with the defender. He had done so by considering that he was bound
to allow the defender credit (a) for the costs she had incurred in settling a
one-half share of the mortgage over the subjects, which had been due by the
debtor, and (b) for one-half of the increase in value of the subjects that was
said to be attributable to the costs she had incurred on alteration, upgrading
and refurbishment works to the subjects, which she authorised and undertaken
since March 2001. Furthermore, the figure of г70,000 at which the pursuer had
agreed to settle with the defender had reflected a further element of discount,
in favour of the defender, from a one half share of the current market value of
the subjects. Moreover the agreement to settle had not included any provision that
the defender meet any part of the pursuer's expenses in the present action.
[21] The minuter argued that he had title and interest to seek
reduction of the disposition, in terms of section 34(1) of the Bankruptcy
(Scotland) Act 1985, and that, having regard to the manner in which the pursuer
had pursued and sought to compromise the present action, the Court should
exercise its discretion in his favour and allow him to be sisted as a pursuer
to the action. The minuter submitted
that whilst it might still be competent for him to raise his own action, if
such an action required to follow an interlocutor in the present action, interponing
authority to the joint minute and dismissing the action, that further action
would be a much more complicated procedure for him to embark upon than would be
the position were he to be sisted as an additional pursuer in the present
action.
Submissions
on behalf of pursuer and defender
[22] The minuter's motion was opposed on behalf of the pursuer and
the defender. Counsel explained that, following upon an extra-judicial
settlement being reached between the pursuer and the defender, the joint minute
had been signed by counsel for both parties and a cheque in settlement had been
sent by the defender's solicitors to the pursuer's solicitors. I was informed that
the cheque would not be cashed pending my ruling on the minuter's principal
motion.
[23] It was argued that it would not be competent for the Court to
allow the minuter to be sisted as an additional pursuer to the present action.
There were no statutory provisions allowing the minuter to be sisted as an
additional pursuer to the present action, which the pursuer had raised in terms
of section 34 of the 1985 Act. If the minuter wished to challenge the pursuer's
conduct in relation to the disposition it was open to him to raise proceedings
for judicial review of the pursuer's decision to compromise the present action.
Such proceedings might well be necessary because once the Court had interponed
authority to the decree entered into by the pursuer and the defender, the
Court's decree would be res judicata on
the issue of whether the disposition could be reduced at the instance of the
minuter on the basis that it had been a gratuitous alienation. In any event,
the provisions of section 65(1) of the 1985 Act prevented the minuter from now
embarking on proceedings to reduce the disposition. If the minuter was
dissatisfied with the pursuer's decision to settle the action with the defender,
the minuter could have recourse to the provisions of section 7 of the 1985 Act
and apply to the sheriff. In terms of section 7 the Sheriff would have power to
confirm, annul or modify the decision that the pursuer had taken to settle the
present action.
[24] It was also contended on behalf of the pursuer and the defender
that there was a further reason why it was not appropriate to allow the minuter
to be sisted as a party to the present action. It was argued that it was clear
from the correspondence the minuter had lodged that he wished to ventilate
grievances about the pursuer's conduct of his duties as trustee on the estates
of the debtor, which were unrelated to the disposition or the issues that had
arisen in the present action.
[25] Mr Duthie argued that it had been open to the pursuer to enter
into the settlement agreement he had. That settlement had taken into account
all the information before the pursuer, including the value of the subjects,
the increase in the value of the subjects attributable to the alterations,
upgrading and refurbishment works carried out to the subjects since March 2001
and the mortgage repaid by the defender following on the debtor's
sequestration. Regard has also been paid to the risks faced by the pursuer in
the present action and in any subsequent action of division and sale, to the
issue of irrecoverable judicial expenses and other costs associated with any
sale of the subjects and to the legal advice that the pursuer had received. It
was argued that against that background it had been open to the pursuer to
reach the decision to settle the action on the basis of a payment by the
defender of a lump sum г70,000, without any further sum being payable by the
defender by way of an award in respect of the expenses. Under reference to Short's Trustee v Chung 1991 S.L.T. 472 it was argued that the purpose of section 34
of the 1985 Act was to allow the bankrupt's estate to be restored to the
situation it would have been in had the gratuitous alienation not taken place.
The statutory provisions were not intended to provide the bankrupt's estate
with a windfall. In the event that
reduction of the disposition was to be granted, the defender would have the
right to be repaid in full out of the estates of the debtor the one-half share
of the mortgage due by the debtor, which the defender had settled on his behalf
following his sequestration. Likewise, in the event that the disposition was to
be reduced, the defender would be entitled to claim in full from the
sequestrated estates of the debtor one half of the extent to which the subjects
had increased in value, on account of the works that she had funded, between
the date of the disposition and the date on which the disposition had been
reduced. That had been the legal basis upon which the pursuer had been
proceeding, when he had entered into a settlement with the defender.
[26] Mr Duthie accepted that following upon the sequestration of the
debtor it would have been competent for the minuter to have raised his own
action seeking reduction of the disposition in terms of section 34 of the 1985
Act. That could have been done by the minuter before the pursuer raised the
present action. But Mr Duthie argued that it had ceased to be competent for the
minuter raise such proceedings once the present action had been raised. Nor was
it competent for a creditor, such as the minute, to be sisted as an additional
pursuer to an action raised by a permanent trustee in terms of section 34 of
the 1985 Act.
Discussion
[27] I have not found this an easy matter to decide. However, having
considered all the submissions placed before me, I have reached the conclusion
that I should grant the minuter's motion and allow him to be sisted as an
additional pursuer in the action.
[28] In reaching that decision, I proceed on the basis that it
remains competent for minuter to raise an action founding on the provisions of
section 34 of the 1985 Act, even although the pursuer has already done so. In
my opinion, there is nothing in the 1985 Act that would prevent the minuter
from doing. Similarly, there is nothing in the Rules of Court, or in any authority
to which I was referred, that supports the view that it would not have been competent
for the minuter to be sisted as an additional party to the action, after it was
raised by the pursuer. In my opinion, as
a matter of competency, the position has not changed merely because the pursuer
and the defender have entered into an agreement to compromise the present
action. In my opinion, if the pursuer and the defender wish to argue that the
joint minute they have entered into amounts to res judicata as against the minuter it would be more sensible, and
less expensive, if that issue was to be addressed in the context of this
action, rather than in separate proceedings. Precisely when that joint minute
was signed may be unclear. However, the Court has not yet interponed authority
to the joint minute and granted decree implementing its terms. Had it already
done so, different considerations might have applied to the issue of whether it
was still competent for the minuter to be sisted as a party to the action.
[29] Similarly if the pursuer and the defender intend to found on
the provisions of section 65(1) of the 1985 Act, as preventing the minuter from
seeking to exercise his rights under section 34 of the 1985 Act, it would be
more sensible for that issue to be addressed and resolved in the present action. At this stage I restrict myself to be
observing that it is arguable that if the minuter is seeking to exercise his
rights under section 34 of the 1985 Act, he is not making a claim on behalf of
the sequestrated estates of the debtor, as opposed to raising proceedings from
which in due course the sequestrated estates, and ultimately the creditors on
those estates, may benefit.
[30] For these reasons, I proceed on the basis that it would be
competent for me to grant the motion to sist the minuter as an additional
pursuer in the action. The question then comes to be whether I should exercise
my discretion and allow him to do so. I have reached the conclusion that I
should. In my opinion, it is arguable that the pursuer has erred in law on the
extent of the defender's rights to receive reimbursement or compensation from the
sequestrated estates of the debtor for funds she has expended in connection
with the subjects since March 2001 and in respect of any part of the increase
in value of the subjects that has taken place since March 2001. However, it may
well be the case that any such errors in law on the part of the pursuer have no
bearing on the nature of minuter's right to seek reduction of the disposition
by founding on the provisions of section 34 of the 1985 Act. For that reason, in
reaching my decision, I have left out of account the contention that the
pursuer my have erred in law.
[31] However it is, in my opinion, perfectly arguable that if the
minuter was in a position to move for decree of reduction in terms of the first
conclusion of the summons the Court might well have evidence before it that would
enable it to find in the minuter's favour. Furthermore, if decree of reduction
of the disposition were to be granted there could well result in more assets being
available to the pursuer, for distribution amongst the creditors of the debtor,
than would be the case were the pursuer's motion to be refused. I also consider that matters would become
more complicated for all the parties involved if the minuter was required to
raise further proceedings, whether relying upon the provisions of section 34(1)
of the 1985 Act and by means of an application to the sheriff in terms of
section 3(7) of the same Act. Indeed, as far as the provisions of section 3(7)
of the 1985 Act are concerned, the minuter's rights under that section appear
to me to be of a very different nature to those which he is entitled to
exercise by virtue of section 34(1). I have taken all these factors into
account in reaching my decision to grant the motion
[32] Having regard to the decision I have reached to grant the minuter's
motion, I will put the case out By Order to hear submissions in relation to the
motion to interpone authority to the joint minute and to discuss further
procedure.
