Scottish Sheriff Court Decisions

SHERIFFDOM OF LOTHIAN AND BORDERS AT EDINBURGH

 

SQ367/07

JUDGEMENT   of   SHERIFF WILLIAM HOLLIGAN   in the Note by   JOHN BRUCE CARTWRIGHT, Insolvency Practitioner, Pricewaterhouse Coopers LLP PO Box 90, Erskine House, 68-73 Queen Street, Edinburgh, EH2 4NH   Permanent Trustee on the sequestrated estate of SYLVIA GALLON or FRASER   ______________

 

 

Edinburgh 24^th May 2011

 

[1] This is a note by the permanent trustee in the sequestration of Sylvia Fraser. There was no appearance by or on behalf of the debtor. The note is lodged pursuant to section 63(1) (b) of the Bankruptcy (Scotland) Act 1985 ("the 1985 Act") seeking certain orders which relate to section 14 thereof.

 

[2] The factual position is straightforward. The date of sequestration in this case is 25^th June 2007, being the date of the warrant to cite. Sequestration was not awarded until 12^th August 2008. It would appear from the process that, at one stage, in proceedings in the Court of Session, the charge upon which the sequestration proceeded was suspended leading to the sequestration process being sisted.

 

[3] The issue in this note concerns section 14 and it is appropriate that I set out the relevant terms thereof:-

"(1) The sheriff clerk shall forthwith after the date of sequestration send -

(a)    a certified copy of the order of the sheriff granting warrant under section 12(2)... to the keeper of the register of inhibitions and adjudications for recording in that register

...

(2) Recording under subsection (1)(a)... shall have the effect as from the date of sequestration of an inhibition and of a citation in an adjudication of the debtor's heritable estate at the instance of the creditors who subsequently have claims in the sequestration accepted under section 49 of this Act.

(3) The effect mentioned in subsection (2) above shall expire-

...

(b)   subject to subsection (4) below... at the end of period of three years beginning with the date of sequestration

(4) The trustee... may before the end of the period of three years mentioned in subsection (3) (b) above send a memorandum in a form prescribed... to the keeper of the register of inhibitions and adjudications for recording in that register, and such recording shall renew the effect mentioned in subsection (2) above: and thereafter the said effect shall continue to be preserved only if such a memorandum is so recorded before the expiry of every subsequent period of three years"

 

[4] Read short, the import of these provisions is that a copy of the warrant to cite is sent to the keeper of the register of inhibitions. The effect of the foregoing is that, as against certain creditors, as from the date of the sequestration, there is in place an inhibition and a citation in an adjudication of the debtor's heritable estate. The "effect" expires at the end of three years beginning with the date of the sequestration. The date of the sequestration is of course the date of the warrant to cite. That effect can be extended by the recording of a memorandum in a prescribed form sent to the keeper prior to the expiry of the three year period. The wording of section 14(4) is slightly curious in that it says that "such recording shall renew the effect mentioned in subsection (2) above". Read literally, that would renew the effect for a period of three years from the date of the sequestration. Clearly that is not what was intended, namely that the effect is renewed for a further period of three years from the date of the expiry of the first three year period and so on for a further period of three years. The form of the memorandum is to be found as form 7 to the Act of Sederunt (Sheriff Court Bankruptcy Rules) 2008 ("the 2008 rules"). The operative part of the memorandum provides "Record this memorandum to renew the effect of that recording for a further period of three years from the date of presentment hereof". I also note that the form makes reference to the date of the court order awarding sequestration, rather than the date of sequestration itself. Given that the three year period runs from the date of sequestration it is not clear to me why the form prescribes the later date. It is also not clear to me whether the form is correct in stating that the period is extended for a period of three years from the date of presentment of the memorandum, rather than three years from the date of the sequestration. However, it is unnecessary for me to express a concluded view on that issue.

 

[5] The relevant three year period in this case expired in June 2010. I was informed that the trustee has a database management system. That system created a renewal within 34 months from the date of the sequestration. In this case there appears to have been an error in relation to the relevant information on the database. For some reason, the three year period was stated as expiring on September 2011 not June 2010. Quite why September 2011 was chosen is not known nor is it obviously connected to any relevant date in the sequestration. I accept that there has been an error in this case. In the meantime, this being a sequestration prior to the Bankruptcy and Diligence etc. (Scotland) Act 2007, the debtor has now received her discharge. The debtor was the heritable proprietor of some five properties, four of which have now been sold by the trustee. There is one left and that is the one she currently resides. I was given certain information concerning the conduct of the sequestration. It is sufficient for me to say that the administration of the sequestration has not been straightforward for the trustee. Obviously the trustee failed to lodge a memorandum pursuant to section 14(4) with the result that the effect prescribed in section 14(2) no longer applies and indeed has not applied since June 2010. I should add that as soon as the error was identified the present note was lodged.

 

[6] As I have said, the note is presented under and in terms of section 63(1) (b) of the 1985 Act which provides:-

"(1) The sheriff may on the application of any person having an interest -

...

(b)   if for any reason anything required or authorised to be done in, or in connection with, the sequestration process cannot be done, make such order as may be necessary to enable that thing to be done"

In short, Miss Campbell submitted that, on the facts of this case, the trustee was unable to send and have recorded a memorandum in accordance with form 7 because the relevant time period had expired. She invited me to exercise my power pursuant to section 63 and to authorise the trustee to send the memorandum to the keeper to record the memorandum. Miss Campbell did not ask me to make any order as to the effect the foregoing. Miss Campbell recognised that a period of almost a year had elapsed since the initial three year period. She accepted that it would not be appropriate for me, in effect, to backdate the memorandum and thus it would only take effect from the date of presentment of the memorandum. The duration of the effect of the memorandum is another issue.

 

[7] In developing her submission, Miss Campbell very properly referred me to the two following authorities: Tewnion's Trustee, Noter 2000 SLT (Sh Ct) 37 (a decision of Sheriff Kelbie) and Roy's Trustee, Noter 2000 SLT (Sh Ct) 77 (a decision of Sheriff Stewart QC). Miss Campbell fairly accepted that, on the face of it, both these authorities were against her. Both concerned applications brought pursuant to section 63(1) (a) in relation to section 14. In both cases the applications were refused. Like the present case, the trustee in both cases had omitted to lodge the memorandum within the relevant three year period. Miss Campbell sought to distinguish both cases. In the case of Tewnion's Trustee, the application was brought pursuant to section 63(1) (a). Read short, section 63(1) (a) refers to a "requirement" of the 1985 Act. Sheriff Kelbie held that there was no "requirement" to lodge a memorandum. Miss Campbell did not disagree with that proposition. In this case she relies upon section 63(1) (b). It would also appear there was some difficulty with the noter's crave which simply asked the court to "allow the entry to be renewed". Sheriff Kelbie dismissed the application as incompetent and also held that, had he any discretion, he would have refused the application. The trustee in that case had failed to explain why the memorandum had not been lodged timeously. Roy's Trustee was a more extreme case. The relevant three year period expired in 1995 but it was not until 2000 that the application was made. Sheriff Stewart QC also held that the application under section 63(1)(a) was incompetent. Sheriff Stewart said, at page 78 H-I "To sustain the competency of an application such as the present would, in my opinion, be to fly in the face of the clearly expressed intention of Parliament. It would render the register of inhibitions and adjudications unreliable in any case where there had been a sequestration". Furthermore, Sheriff Stewart also held that, even if the application had been competent, he would have refused it on its merits.

 

[8] Although Tewnion's Trustee appears to have been decided upon the basis of the application of section 63(1)(a), in the course of his judgment, Sheriff Kelbie also considered the terms of section 63(1)(b) at page 38 D-E holding that that subsection could not authorise what the Noter seeks. I can quite see why, on the facts of those particular cases the notes were dismissed. There were clearly difficulties with the wording of the craves and the factual situations, together with the absence of any proper explanation for the failure to lodge a memorandum timeously. To that extent, I agree with Miss Campbell that those two cases can be distinguished from the present case. In particular, Miss Campbell has been careful to phrase her note asking the court to authorise the sending of the memorandum and to authorise the keeper to record such a memorandum. In the course of her very helpful submission, Miss Campbell referred me to section 63 in detail and certain paragraphs (7.41 - 7.47) of the Scottish Law Commission Report which was the basis for much of the 1985 Act. Miss Campbell relied upon the word "authorised" in section 63(1)(b). Section 14 "authorised" the sending and recording of a memorandum. It was that which now "cannot be done". It cannot be done because it is too late for it to be done. The purpose of section 63 is to cure defects in procedure. It is not difficult to envisage circumstances calling out a swift procedural remedy. For example, if a trustee were to send a memorandum for recording within the relevant three year period but the memorandum became mislaid in the post and this was discovered very shortly after the expiry of the three year period one might think that is the very thing which section 63 was designed to address. To hold that an application under section 63(1)(b) to deal with this situation is incompetent means that there are no circumstance in which it could be granted. It also means that, unlike other provisions of the 1985 Act, section 14 cases are beyond the reach of section 63. As the example I gave illustrates, such a conclusion might have harsh consequences. Initially I was concerned by the dicta of Sheriff Stewart as to the faith of the register but on reflection I am not so sure that the difficulties are quite so pronounced. As I have said I can quite see why Sheriff Kelbie and Sheriff Stewart would have refused the applications before them on their merits regardless of issues of competency. However, Miss Campbell did not seek an order which would cover the period between June 2010 and the present. All she could seek is an order for what amounts to the unexpired portion of the period had the memorandum been renewed timeously. The debtor has had notification of the note and does not oppose it. There has been a simple diary error addressed immediately when identified. There is, on the merits which I need not expand upon, a real risk of prejudice to the creditors. Section 63(2) allows me to authorise any act in the sequestration process and to extend or waive any time limit specified in or under the 1985 Act. It seems to me that, were I to authorise the noter to lodge with keeper a document having the effect of a memorandum and authorise the keeper to receive and to record it, providing that the period of the document or memorandum is for what I will describe as the unexpired period of the three period, that would put the noter as near as maybe back in the position as he would have been had it been lodged timeously. It would not, and cannot, cover the period during which the memorandum had expired but, on the other hand it would only take effect from the date of registration, so preserving the register from apostasy. I shall give Miss Campbell an opportunity to address me on the content of the interlocutor to be pronounced to give effect to my decision.