OUTER HOUSE, COURT OF SESSION
[2009] CSOH NUMBER
5
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A370/07
|
OPINION OF LORD HARDIE
in the cause
KAROLA BARLOW (AP)
Pursuer;
against
CITY PLUMBING
SUPPLIES HOLDINGS LIMITED
First Defenders:
BRIAN WILLIAM MILNE
Second
Defender
|
|
|
Pursuer:
Logan: Lindsays WS
First defenders: Hawkes; Allan McDougall & Co
16 January 2009
Introduction
[1] The pursuer seeks a declarator that she is
not a debtor in terms of the decree in absence pronounced on 28 June 2005 by the sheriff at Edinburgh
in an action at the instance of the first defenders against the firm trading
under the name of IGS Plumbing & Electrical and she seeks reduction of any
diligence against her following upon said decree. The pursuer also seeks reduction of a decree
of sequestration awarded against the pursuer at the instance of the first defenders
on 20 September 2005 at Edinburgh
Sheriff Court.
The remaining conclusions are ancillary to the first two conclusions. The case called before me at Procedure Roll
in respect of the first two pleas-in-law for the first defenders which were in
the following terms:-
"1. The action is incompetent.
2. The pursuer's averments being irrelevant et separatim lacking in specification
the action should be dismissed."
In the course of the debate counsel
for the first defenders conceded that his concerns were properly those of the
relevance of the averments and submitted that the proper course for me was to
repel the first plea in law but to sustain the second plea in law resulting in
the dismissal in the action. Counsel for
the pursuer invited me to repel of consent the first plea-in-law and to reserve
the second plea-in-law by allowing a proof before answer.
Factual
Averments
[2] The
pursuer alleges that when she resided at 11 East
Craigs Drive, Edinburgh she
had a relationship with Ian Gordon Spence who also resided there. He was a plumber who traded under the name IGS
Plumbing & Electrical. Unknown to
the pursuer he used her name trading as that firm to obtain credit from a
number of suppliers including the first named defenders. In March 2004 the pursuer discovered invoices
and applications for credit in her name as a result of which she contacted the
creditors including the first defenders and explained to them that the accounts
were not her responsibility but that of Mr Spence. The first defenders sued IGS Plumbing &
Electrical in the firm name only and obtained a decree in absence against that
firm on 28 June 2005
at Edinburgh Sheriff Court. The pursuer avers that she was not at any
time a partner or employee of IGS Plumbing & Electrical and did not
authorise Mr Spence to use her name for the obtaining of credit or
otherwise. The use of her name by him
was fraudulent. On 19 July 2005 a charge
against IGS Plumbing & Electrical based upon the said decree was served by keyhole
service at 11 East Craigs Drive, Edinburgh when the pursuer was absent from
home. The first defenders' position is
that the application form for credit with them was completed in the name of the
pursuer, trading as IGS Plumbing & Electrical and in those circumstances
the first defenders were entitled to assume that the pursuer was the sole
proprietor of that firm. On 13 September 2005 a petition
for sequestration of the pursuer at the instance of the first defenders was
served by letterbox service at 11 Craigs Drive,
Edinburgh.
By that date the pursuer did not own that address or reside there. The pursuer was subsequently sequestrated on 20 September 2005 at Edinburgh
Sheriff Court when she had no knowledge of those
proceedings. The pursuer avers that she remained
unaware of her sequestration until 6 October 2005. A timeline (6/23 of process) relating to the
period between 16 October 2005
and November 2007 is incorporated into the pleadings. On 16 October 2005
the pursuer consulted solicitors in Perth
but no action was taken by them to seek recall of her sequestration. The second defender advised her to consult
other solicitors and her current solicitors, Lindsays WS, accepted instructions
on 21 November 2005. They also took no action to petition for
recall of the sequestration.
Submissions
on behalf of the first defenders
[3] Counsel
for the first defenders referred to the pursuer's averment that on 29 March 2004 she
discovered invoices and applications for credit in her name in Mr Spence's
van. As was apparent from the summary
cause summons (7/1 of process) the decree obtained by the defenders on 28 June 2005 against IGS
Plumbing & Electrical related to the supply of building materials between 10 February 2004 and 5 March 2004. Counsel submitted that the averment in
article 3 of Condescendence at page 9E of the Closed Record relating to the
opening of an account with the first defenders lacks specification. In particular it does not specify how the
form was completed or whether it was completed in the presence of
representatives of the first defenders.
[4] He
also submitted that, having obtained decree against the firm of IGS Plumbing
& Electrical and having served a charge upon the firm, it was competent to
sequestrate the pursuer on the basis that she had been trading as that
firm. The pursuer's averments in article
5 of Condescendence relating to the designation of the firm as the debtor in
the summary cause summons and in the subsequent charge for payment were
irrelevant, as were the averments that the first defenders or their agents
failed to ensure proper service of the petition for sequestration and that the
petition was inept.
[5] The
averments in article 6 of Condescendence specify the actions of the pursuer
after 6 October 2005
when she allegedly became aware of the award of sequestration. Counsel submitted that the Bankruptcy (Scotland)
Act 1985 ("the Act") provides remedies for the recall of a sequestration. In particular the debtor may petition for
recall of the sequestration within ten weeks after the date of the award of the
sequestration (section 16(4)(a)) or the debtor may petition for recall of
sequestration at any time if the petition is presented on any of the grounds specified
in section 17(1)(a) to (c) inclusive (section 16(4)(b)). In the present case the date of the award of sequestration
was 20 September 2005
and the ten week period expired on 29 November 2005. The pursuer alleges that she first became
aware of the sequestration on 6 October 2005. At that date eight weeks remained within
which she could have presented a petition for recall of her sequestration in
terms of section 16(4)(a). She did not
do so. Moreover the averments disclose a
long period of inactivity by the pursuer.
The pursuer's legal aid application was not submitted by her present
solicitors until 2007. The averments do
not contain any satisfactory explanation for the delay between October 2005
and January 2007. The pursuer
should not be absolved of responsibility for failing to act within the statutory
ten week period. If her failure was
attributable to the negligence of her solicitors her remedy is against them.
[6] Counsel
also submitted that the court should not interfere with the award of
sequestration in the absence of clear averments of fraud on the part of the
first defenders. Under reference to Goudy: "The Law
of Bankruptcy in Scotland" (4th edition) page 147,
counsel recognised that where recall of a sequestration has become incompetent,
owing to lapse of time, it was possible in some circumstances to seek reduction
of the sequestration proceedings.
However the circumstances where it might be appropriate to do so were
exceptional. Goudy envisaged such
proceedings where the award had been obtained by forgery or gross fraud. The pursuer's averments did not support an
allegation of fraud against the first defenders and counsel for the first defenders
understood that no such suggestion was to be made. The averments about the manner in which Mr
Spence allegedly perpetrated a fraud on the first defenders to obtain credit in
name of the pursuer were not precise.
Nevertheless counsel for the first defenders accepted that they were
sufficient to enable the pursuer to lead evidence about the alleged fraud at
any proof. Counsel acknowledged that the
continued relationship between the pursuer and Mr Spence after her knowledge of
his alleged fraud was a matter for submissions after evidence on this matter
had been led. Any fraud by Mr Spence was
a fraud on the defenders and possibly on the pursuer. In the circumstances of this case the award
of sequestration had not been obtained by fraud. The award of sequestration is valid and is not
tainted by actions of a third party resulting in a decree for debt particularly
where that decree had not been reduced.
If there has been a miscarriage of justice in the sense that the
original decree for payment was challengeable, counsel submitted that did not
make the proceedings for the sequestration fundamentally null.
[7] Counsel
also submitted that there were other remedies available to the pursuer. The pursuer could have petitioned for recall
of her sequestration within ten weeks of the award. She had the benefit of legal advice during
the last eight weeks of that period.
Even after that period expired she could have sought reduction of the
decree for payment which was the basis of the petition for sequestration. Thereafter she could have petitioned for the
recall of the sequestration in terms of section 17(1)(a) of the Act. Alternatively the pursuer could have settled
the debt due to the defenders or provided the defenders with adequate security
for that debt and thereafter petitioned for recall of the sequestration. A further possible remedy was a petition to
the nobile officium although counsel
accepted that there may be difficulties associated with such a petition.
[8] In
all the circumstances counsel invited me to dismiss the action as irrelevant in
view of the failure of the pursuer to seek recall of the sequestration within
the statutory ten week period and having regard to her delay in taking action
when she has had the benefit of legal advice since two weeks after the date of
her sequestration. The absence of a
relevant explanation for the inordinate delay in this case resulted in her
failure to meet the test that required wholly exceptional circumstances before
an award of sequestration would be reduced.
Submissions
on behalf of the pursuer
[9] Counsel
for the pursuer invited me to repel the first plea-in-law for the first defenders
and thereafter to allow a proof before answer.
He submitted that counsel for the first defenders was in error when he
referred to remedies available to the pursuer after the statutory ten week
period had expired. After that period
the Act provides the remedy of recall of sequestration if one of the grounds
specified in section 17(1)(a) to (c) inclusive is established
(section 16(4)(b)). The only ground that
might apply in this case was if the pursuer had paid her debts in full or had
given sufficient security for their payment.
(Section 17(1)(a)). The pursuer
maintains that the debt due by IGS Plumbing & Electrical is not her
debt. That is a matter for proof and it
would be unrealistic and unreasonable to expect the pursuer to pay the debt of
a third party to enable her to obtain recall of her sequestration. The pursuer does not intend to pay the debt
or offer security for it. Instead she
seeks declarator in terms of the first conclusion that the debt is not
hers. Counsel accepted that if the
pursuer is successful in that conclusion she may then be entitled to recall of
the sequestration in terms of section 17(1)(a).
However an action of reduction of an award of sequestration was also
competent. Section 15(4) of the Act is
in the following terms:-
"Without
prejudice to any right to bring an action of reduction of an award of
sequestration, such an award shall not be subject to review otherwise than by
recall under sections 16 and 17 of this Act."
That provision specifically
preserves the right of a debtor to seek an action of reduction.
[10] Counsel also submitted that an action of reduction of the
decree of debt was not appropriate in this case. The debt was properly due by IGS Plumbing
& Electrical. The issue in this case
was whether the pursuer was either a sole trader using that name or was a
partner of that firm. An action of
reduction was bound to fail. Moreover an
application to the nobile officium
would not have been appropriate. There
was no lacuna in the statutory
provisions for recall. The exercise of
the nobile officium was even more
exceptional than an action of reduction of an award of sequestration.
[11] In relation to the question of delay the averments in article 6
of Condescendence set out the history of the actions taken by the pursuer. These incorporate the timeline (6/23 of
process). Significant parts of the delay
were occasioned by the failure or inability of the first defenders to provide
records to the pursuer's advisors.
Unsuccessful attempts had been made to persuade Mr Spence to pay the
debt due to the first defenders with a view to seeking their consent to recall
of the sequestration. Moreover it was
necessary to investigate other creditors to clarify whether they were creditors
of the pursuer and also whether they would consent to recall or reduction of
the sequestration. The trustee in the
present case does not oppose the action and any prejudice occasioned by delay
is minimal. The defences are silent
concerning the consequences of the delay and there is no plea of mora.
The failure of the pursuer's solicitors to act timeously does not make
the action irrelevant.
[12] Counsel also submitted that if the decree of sequestration was
obtained as a result of a decree for debt that in itself was tainted by fraud,
the proper conclusion was that the decree for sequestration had been obtained
by fraud. The petition for sequestration
was impetrated by fraud because it was based upon the fraudulent form completed
by Mr Spence. Moreover the test is
whether there has been a miscarriage of justice. He submitted that it is clear on the basis of
the pursuer's averments that the first defenders were misled into believing
that Mr Spence's debt was truly the debt of the pursuer. What followed as a result of that
misunderstanding was clearly a miscarriage of justice. Balanced against that, the court would have
to consider the delay on the part of the pursuer in taking action and the
consequences of any such delay. In
considering the question of overall fairness the court may require to consider
whether the pursuer has been indifferent or whether she acted promptly and
appropriately. Following sequestration
the interests of third parties including the trustee in sequestration and other
creditors are potentially affected by a reduction of sequestration. Except in extreme cases the court should not
determine as a matter of relevance whether there had been inexcusable delay. That should only be determined after evidence
has been heard.
Response
on behalf of the first defenders
[13] Counsel for the first defenders accepted that a petition to the
nobile officium would have failed in
this case because the pursuer had failed to avail herself of the statutory
remedies prior to the expiry of the ten week period specified in
section 16(14)(a). In regard to the
submission relating to the occurrence of substantial injustice, counsel
submitted that the decree of sequestration had not been obtained by fraud and
that the alleged fraud predated the court action in which decree for payment
was sought and obtained. As regards the
actions of the pursuer following her alleged discovery of the award of
sequestration, the failure of her solicitors to act timeously was analogous to
the failure of solicitors to act within the three year limitation period in
personal injury actions. As with any
statutory time bar the obligation on solicitors advising clients was to give
clear and unequivocal advice concerning the time limits that applied. Failure to act within the time period must be
explained to the client. The client must
be aware of the intention to take no action within the statutory period and the
client must consent to that course being adopted by the solicitor. An award of damages against her solicitors
would compensate the pursuer for their failure to seek recall of her
sequestration, if they had been negligent.
Authorities
cited
In
the course of the debate the following authorities were cited:
Central Motor Engineering Co v Galbraith 1918 SC755;
Adair v Colville & Sons 1926 SC(HL)51;
Arthur v The SMT Sales and Service Co
Ltd 1999 SC109;
Smillie v Olympic House Ltd 2004 SLT1244;
Bain v Hugh L.S. McConnell Ltd 1991 SLT691;
John Parkes v Robin MacGregor & another [2008] CSOH 43;
Dickson v United Dominions Trust Ltd 1988 SLT19;
Pert v Bruce 1937 SLT 475;
Wright v Tennent Caledonian Breweries Ltd 1991 SLT823;
Brown v Middlemas of Kelso Ltd 1994 SC401;
Sutherland v Advocate General 2006 SC682;
Bankruptcy
(Scotland) Act
1985 (as amended);
Summary
Cause Rules 2002
Goudy: "The Law of Bankruptcy in Scotland"
(4th Edition);
McBryde: "Bankruptcy (2nd Edition);
Discussion
[14] Before dealing with the substantive issue of the relevance of
the action as a whole I have considered the criticism of the pursuer's
averments in article 5 of Condescendence.
It seems to me that there is considerable force in that criticism. The fact that the first defenders obtained
decree in the name of a firm, omitting to mention the pursuer as a principal of
the firm and the fact that the charge reflected the terms of the decree is
irrelevant. As was conceded by counsel
for the pursuer the summons and the decree are each in a competent form. Equally irrelevant to the question of the
declarator and reduction sought in terms of the first and second conclusions of
the summons respectively are the averments that the first defenders or their
agents "failed to ensure proper service of the petition of sequestration" and
that "the petition itself is inept because it fails to aver the basis upon
which the pursuer was liable for a decree that was not addressed to her." Counsel for the pursuer accepted that these
averments were of no moment in relation to the principal conclusions of the
summons but explained that they were intended to support the fourth conclusion
seeking an order that the first defenders should be liable to the second
defender in the cost of the administration of the sequestration to date. While I have considerable reservations about the
relevance of these averments generally, I cannot exclude at this stage the
possibility that they may have some relevance for the limited purpose explained
by counsel for the pursuer. Accordingly
I shall not exclude them from probation.
[15] Although counsel for the first defenders initially submitted
that the action was incompetent, subsequently he restricted his submissions to
the plea to the relevance of the pursuer's averments and conceded that an
action of reduction of an award of sequestration was competent. From the authorities cited it seems to me
that although such an action is competent it is necessary for a pursuer to aver
and prove exceptional circumstances in support of such a remedy. The passage cited from Goudy's fourth edition
of "The Law of Bankruptcy in Scotland", that where the recall of
sequestration has become incompetent because of the lapse of time
"it is possible
that in some circumstances a reduction of the sequestration proceedings might
be brought - as for example where the award has been obtained by a forgery or
gross fraud" (page 147)
appeared in the third edition and
was cited with approval in the opinion of Lord McKenzie in Central Motoring Engineering Company v Galbraith at page 770.
Lord McKenzie acknowledged that an action of reduction of a decree of
sequestration was not incompetent but observed that there had been no case in
which decree of reduction had been pronounced.
He explained that the reason was that it was only
"in a case where
exceptional circumstances can be pleaded that the exceptional remedy by way of
reduction could be granted".
Whether there are such exceptional
circumstances meriting the exceptional remedy of reduction of an award of
sequestration involves, in my opinion, careful consideration of the facts and
circumstances of the particular case. In
the absence of an agreed statement of facts it seems to me that the
determination of whether such exceptional circumstances exist will inevitably
involve a proof, assuming the pursuer makes sufficient averments that could
amount to exceptional circumstances. In
order to determine whether there are exceptional circumstances justifying this
unusual remedy there appear to be two issues that require exploration in the present
case. The first relates to the alleged
fraud by Mr Spence in ordering goods while pretending that the pursuer was a
principal of IGS Plumbing & Electrical.
Allied to that allegation is the continued relationship between the
pursuer and Mr Spence after the pursuer's knowledge of such fraud and the
extent of the pursuer's knowledge of the proceedings for her sequestration
including the decree and the charge that predated the petition for
sequestration. Without inquiry into such
matters I am not prepared to dismiss as irrelevant the allegations of fraud by
Mr Spence. If the debt was that of a
firm with which the pursuer had no connection, the sequestration of the pursuer
is apparently an injustice. If the
pursuer had not been able to avail herself of the remedy in section 16(4)(a) of
the Act it may well be that the award of sequestration should be reduced. However that cannot be determined in
isolation and must be considered in the context of the case as a whole. The second issue requiring exploration at
proof is, even if the pursuer was unaware of the sequestration proceedings
until two weeks after the award of sequestration, her failure to take action to
recall the award during the following eight weeks and the subsequent delay in
taking proceedings. Although the first defenders
have no averments about the consequences of such delay for them or others there
are averments in Answer 6 that would enable them to explore the reasons for the
delay.
[16] Before hearing the debate I raised with counsel for both
parties the question of the appropriateness of the pursuer's solicitors acting
in the present case in view of the fact that they had acted for the defenders
in seeking the award of sequestration of the pursuer, which was the subject
matter of the present proceedings. 6/7
of process is a letter dated 20 September 2005
from Lindsays WS, the pursuer's present solicitors, addressed to Messrs Nolan
Macleod, the first defenders' solicitors.
That letter discloses that Messrs Lindsays WS acted as correspondents
for Messrs Nolan Macleod in the sequestration of the petitioner and appeared on
behalf of the first defenders when decree of sequestration of the pursuer was
pronounced. I referred counsel to that
letter. I was advised that this matter
had been raised by the first defenders' solicitors with the pursuer's
solicitors who had maintained that there was no conflict of interest in their
now acting for the pursuer. The pursuer's
solicitors had taken advice from the Law Society of Scotland and were of the view
that they could continue to act in this case.
In the course of the debate it became clear that the pursuer consulted
her former solicitors in Perth and
her present solicitors prior to the expiry of the ten week period within which
she could have petitioned for recall of her sequestration. Moreover it was accepted by counsel for the first
defenders that, if such a petition had been presented within the statutory
period alleging that the debt forming the basis of the petition for
sequestration was not truly the debt of the pursuer, such a petition for recall
would almost certainly have been successful.
In the context of the appropriateness of a petition to the nobile officium I was referred to the
case of Brown v Middlemas of Kelso Ltd. In the course of submissions in that case
the court was referred to observations of Lord President Clyde in Maitland, petitioner 1961 SC291 at 293
to the following affect:
"The nobile officium of this court involves a power in the Supreme Court
in Scotland to
enable justice to be done where, per
incuriam, some formal step has been omitted and quite unnecessary delay and
expense would be involved if the procedure had to be gone through all over
again. It is often invoked in connexion
with the omission of some procedural, technical, step in bankruptcy or in the
liquidation of companies. But it would,
in my view, be invoked in vein if it were to be used as a mere cloak for
incompetence on the part of the applicant's representatives ......"
In Brown v Middlemas of Kelso
Ltd the court was influenced by the fact that the petitioner did not
advance any colourable explanation for his failure to seek recall of
sequestration prior to the expiry of the ten week period. It respectfully seems to me that the comments
of Lord President Clyde may also be apt in the present case, depending upon its
particular facts and circumstances. If
the remedy which the pursuer seeks is an exceptional one it might be
inappropriate for the court to grant it if it were established that the pursuer
could have sought and obtained the recall of the sequestration by availing
herself of section 16(4)(a) of the Act.
Whether the failure to do so resulted from the pursuer's failure to give
appropriate instructions to her solicitors or whether it resulted from incompetence
on the part of the solicitors might be irrelevant. If it is the latter, the pursuer's remedy is
to seek redress against the solicitors who were negligent. If it is the former, the actions of the
pursuer need to be balanced against any other relevant facts and circumstances
in order to determine whether an exceptional remedy should be granted. The reasons for the delay during the eight
weeks available to the pursuer in which she could have sought recall of the
sequestration should not, in my opinion, be determined on the basis of the
pleadings but require to be elucidated in evidence. In that regard either party may wish to
explore the issue of the advice tendered to the pursuer and the instructions
given by her to her solicitors prior to the expiry of the ten week period as
well as the reasons for the pursuer's failure to act. As the pursuer's past and present solicitors
may be cited as witnesses by either party it remains a question for her present
solicitors to consider the appropriateness of their continuing to act in this
case.
[17] I do not consider that the alternative remedies suggested by
counsel for the first defenders were appropriate. It was ultimately accepted by counsel for the
first defenders that a petition to the nobile
officium was not appropriate. Even
if that had not been acknowledged I would have rejected his submissions in that
regard. The circumstances that prevailed
in Wright v Tennent Caledonian Breweries Ltd could not apply in the present
case. In that case the ten week period
during which a debtor could seek recall of an award of sequestration commenced
with the date of the warrant of citation and that period elapsed before
sequestration was awarded, thereby depriving the petitioner of the statutory
remedy. Since then the legislation has
been changed so that the commencement date of the ten week period is now the
date of the award of sequestration.
[18] Nor do I consider than an action of reduction of the summary
decree would have been successful, if competent. Rule 5.2 of the Summary Cause Rules 2002
permits a person carrying on a business under a trading or descriptive name to
sue or be sued in such trading or descriptive name alone. A decree against a person under the trading
or descriptive name is a valid warrant for diligence against that person. In the present case decree was taken against
the firm and the decree was warrant for diligence against the individual or
individuals carrying on business in that descriptive name. The debt was due by the firm and there is no
basis for reducing the decree against the firm.
[19] Equally if she is not the true debtor I do not consider that it
is reasonable to expect the pursuer to pay the debt due to the first defenders
to enable her to seek recall of her sequestration under section 16(4)(b) of the
Act . However, counsel for the pursuer accepted
that if declarator in terms of the first conclusion is granted, recall of the
sequestration may be available under section 16(4)(b). Thus even if declarator is pronounced the
court may take into account such a remedy before granting the exceptional
remedy of reduction. The availability of
that remedy is simply another factor to be considered. In all the circumstances I shall allow a
proof before answer.
Decision
[20] I shall repel of consent the first plea-in-law for the first defenders
and quoad ultra shall allow a proof
before answer.