Scottish Sheriff Court Decisions

(L99/09)

JUDGMENT OF

SHERIFF PRINCIPAL EDWARD F BOWEN QC

in the appeal

in the cause

PEC BARR (HOLDINGS) LTD

Petitioners

against

MUNRO HOLDINGS UK LTD

Act: Scott, Campbell Smith WS

Alt: Miss W Thomson, Brechin Tindall Oates

EDINBURGH, 12 February 2010

The Sheriff Principal, having resumed consideration of the cause, refuses the appeal and adheres to the sheriff's interlocutor dated 20 August 2009; reserves all questions of expenses.

(signed) E Bowen

NOTE:

1. This appeal arises following the granting of a winding up order for the appellant company, on the ground that it is unable to pay its debts. It raises a short issue concerning the approach of the court, in an application under section 122(1) of the Insolvency Act 1986, to the existence of a disputed debt.

2. The essential dispute between the parties centred around a contention by the appellants that their debt to the petitioners had been extinguished by a payment of £5,000 said to have been made in cash by a former employee to a director of the petitioners in about August 2008. The sheriff had before him, amongst other material, affidavits provided by the appellants' employee Mr Creswell, and the petitioners' director Mr Barr. The substance of Mr Barr's affidavit was that he had never received a payment in cash from Mr Creswell. Mr Creswell's affidavit, on the other hand suggested that such a payment had been made. After reviewing what was said in the affidavits and making reference to certain other matters involving rental payments by the appellants to the petitioners the sheriff concluded that there was "no dispute as to the existence of the debt on substantial grounds".

3. There is no argument that the sheriff approached the issue before him other than on a proper basis in law. Both parties agreed that this is set out in the judgment of Lord Hodge in the case of Macplant Services Limited to wind up Contract Lifting Services (Scotland) Limited [2008] CSOH 158 (12 November 2008). In paragraph 8 his Lordship sets out that a petitioner will not be a creditor for the purposes of section 124 of the Act, and thus will not have title and interest to seek a winding up under section 122 if the respondent company shows that the debt is disputed in good faith and on substantial grounds. In paragraph 9 his Lordship observed: "Where, as here, each side produces many affidavits and voluminous documentary evidence, it appears to me that the court must look at the material which the parties place before it to see if it can form a view on whether there is a bona fide dispute about the petitioners' claimed debt which is based on substantial grounds. Where the court is persuaded that there is such a dispute, the proper course is to dismiss the winding up petition as the petitioner will not have established its title as creditor." His Lordship went on to make observations as to the appropriate course where there was doubt as to whether there was a bona fide dispute on substantial grounds.

4. In the present case Miss Thomson for the appellants contended that the sheriff had given no reason for "rejecting Mr Creswell's evidence". She referred to passages in Macphail, Sheriff Court Practice 3^rd Ed at paragraph 18-107 and to the case of Angus v Glasgow Corporation 1977 SLT 206 (in particular at page 213) in support of the contention that where a finding does not bear to turn upon a judge's observation or impression of a witness an appellate court is free to examine for itself his stated reasons for accepting or rejecting the witness's evidence, and if they are unsound or satisfactory to form its own conclusion. She proceeded to advance reasons why Mr Creswell's evidence might have been accepted, and Mr Barr's rejected.

5. In the course of his submissions Mr Scott on behalf of the petitioners and respondents contended that the appeal constituted an attempt to challenge the exercise of the sheriff's discretion, and could not succeed unless it were to be shown that the sheriff had gone completely and totally wrong. He referred to Macphail at paragraph 18-110 and to the well known authorities cited therein. I do not accept the contention that the sheriff was exercising a discretion in relation to the issue with which this appeal is concerned. It is correct that there is an element of discretion in determining whether to grant an application under section 122 of the Insolvency Act, but the issue of whether there is a bona fide dispute as to the existence of a debt on substantial grounds is to my mind a matter for the exercise of judgment on the basis of material placed before the court rather than an exercise of discretion.

6. Equally, on a strict understanding of the exercise being carried out by the sheriff, it appears to me to be incorrect to say that he was involved in a decision as to the credibility of Mr Creswell. The sheriff was not dealing with the matter having heard evidence from witnesses, and the case is thus distinguishable from Angus v Glasgow Corporation and others which are authority for the view that in certain special circumstances an appellate court will regard itself as free to examine a decision based on the testimony of witnesses without having enjoyed the benefit of seeing or hearing them.

7. In the Macplant case Lord Hodge observed (at paragraph 9): "Before dismissing or sisting the application or allowing oral evidence in what is meant to be summary procedure, I think that the court should assess the conflicting evidence in the context of its consideration of all the evidence which is placed before it to see if it is credible and may be relied on to demonstrate the existence of a dispute. The Companies Court in England takes a similar approach, asking whether there is a fair or reasonable probability of the defendant having a defence: re a Company Number 006685 of 1996 1977 (BCC 830) at 838 C-F". That is the question which the sheriff had to ask himself - whether there was a fair or reasonable probability of there being a defence.

8. I consider that there is little scope for criticism of the decision arrived at by the sheriff on that issue. As the solicitor for the petitioners pointed out the sheriff had before him not only the affidavits but bank statements which revealed something of the history of payments by the appellants to the petitioners. These showed that on several occasions cheques for payment of rent had not been honoured when presented to the bank. Moreover, there were two cash payments totalling £6,0000 made towards the end of August 2008, both of which were made by direct deposit into the petitioners' bank account. When taken alongside the denial by the petitioners' director of receipt of any cash payment at that time it does not seem to me that the sheriff could be criticised for reaching the view that a contention that Mr Creswell made a further cash payment to the director and obtained a receipt which he then left behind in the licensed premises occupied by the appellants was not an issue of "substance".

9. That conclusion is sufficient for disposal of the appeal which falls to be refused. The solicitor for the petitioners invited me to reserve the question of expenses as he wished to consider the possibility of making a motion for expenses against a director of the appellants as dominus litis. I have acceded to that request.