Scottish Court of Session Decisions

In December 1986 the present defenders presented in the Sheriff Court at Aberdeen a petition for sequestration of the estate of the present pursuer. That petition proceeded on averments that the defenders were qualified creditors of the pursuer by virtue of a decree in absence granted in their favour by the Sheriff at Stonehaven on 22 July 1986, and that the pursuer was apparently insolvent by virtue of the expiry without payment of a charge served on 25 August 1986. On 22 December 1986 a first order was pronounced granting warrant to cite the pursuer to appear on 14 January 1987 to show cause why sequestration should not be awarded. On 14 January 1987 the pursuer did not appear and sequestration was awarded. In this action, which was signetted in December 1996, the pursuer originally sought only reduction of the award of sequestration. In May 1998 he was allowed to amend to add a conclusion for reduction of the decree of 22 July 1986.

The relevancy of the pursuer's pleadings was debated on the procedure roll on 15 May 1998. On 5 June 1998 the Temporary Lord Ordinary sustained the defenders' second plea-in-law and dismissed the action. The pursuer seeks review of that interlocutor.

Before us the pursuer appeared on his own behalf, as he had done before the Temporary Lord Ordinary. His submissions were set out at some length in his Grounds of Appeal (No. 38 of process), and these he adopted without repeating them orally. He also made brief reference to his pleadings, and to a document entitled Pursuer's Answers to the Defenders' Note of Arguments, which contained the argument which he had read to the Temporary Lord Ordinary.

The pursuer's first principal contention may be summarised as follows. The defenders were not qualified creditors within the meaning of section 5(4) of the Bankruptcy (Scotland) Act 1985 ("the Act"). At the material time a debt of not less than £750 was required for that purpose. In terms of section 5(5) of, and paragraph 1(1) of Schedule 1 to, the Act, the amount of the debt was "the accumulated sum of principal and any interest which is due on the debt" as at the date of presentation of the petition for sequestration. The decree in absence of 22 July 1986 was for the sum of £694.29, with interest at the rate of 15% annually from the date of citation until payment, and £47.30 of expenses. Although the defenders' oath stated the amount of the debt at £777.68, that was erroneous, because, first, the sum of expenses was not "principal" within the meaning of paragraph 1(1) of Schedule 1, and, secondly, the sum of £36.03 in respect of Sheriff Officer's fees (a) was not "principal" within the meaning of paragraph 1(1), (b) was not properly to be regarded as a debt due by the pursuer to the defenders (being due to the Sheriff Officer by the creditor's solicitors - Stirling Park & Co v Digby, Brown & Co 1996 SLT (Sh Ct) 17), and (c) was not properly vouched in terms of section 11(5) of the Act. Although paragraph 1(1) permitted the inclusion of accumulated interest, the defenders' oath did not seek to include it. The amount of the pursuer's debt to the defenders was thus insufficient to make them qualified creditors. The award of sequestration therefore proceeded on an erroneous basis, having been granted at the instance of a party who was not a qualified creditor. For that reason it should be reduced.

In response to that submission, Mrs Smith for the defenders relied on the decision of the High Court of Justiciary in Arthur v H. M. Advocate 1993 JC 57. In that case the present pursuer was indicted on charges of contravention of the Act. He challenged the averment of special capacity that he was a debtor whose estates had been sequestrated. The argument put forward on his behalf was that the sequestration had proceeded on the petition of a creditor whose debt was of insufficient amount. Only the sum of £694.29 was "principal" within the meaning of paragraph 1(1). The sums of £47.30 and £36.03 could not be included in the aggregate. That argument was rejected by the High Court. In delivering the Opinion of the Court, Lord Justice-Clerk Ross said (at 60D-E):

So far as the Sheriff Officer's fees were concerned, Mrs Smith submitted that, although they were a debt due in the first instance by the creditor's solicitors to the Sheriff Officer (Stirling Park & Co v Digby, Brown & Co), that debt was incurred by the solicitors as agents for the creditor, and therefore was an outlay which the creditor was obliged to reimburse. The creditor was then entitled to seek to recover the fees, as expenses of diligence, from the debtor (Maher and Cusine, The Law and Practice of Diligence, para. 13.01; Graham Stewart on Diligence, pp. 133 and 347). Although there was a practical connection between the requirements of section 5(4) as to the amount of the debt which had to be owed to a creditor if he was to be a qualified creditor, and the requirements of section 11 as to the creditor's oath, in respect that the court entertaining the petition for sequestration was unlikely to be satisfied that the creditor was qualified if the oath, and relative vouchers, did not disclose a debt of the required amount, the issue of whether the creditor was qualified or not was a factual one which could be addressed independently of the oath and its vouchers. In any event, the Sheriff Officer's fees were adequately vouched by the execution of charge, since their amount was fixed by Act of Sederunt.

Alternatively, if the Sheriff Officer's fees could not be taken into account in calculating the amount of the debt, Mrs Smith submitted that the accumulated interest could be, despite its not being mentioned in the oath. By the date of presentation of the petition it amounted to a little over £40. An amount in excess of £750 could therefore be made up by taking into account the sum of £694.29, the expenses of £47.30 and interest of about £40, without relying on the Sheriff Officer's fees.

We are in agreement with the approach to the construction of the word "principal" in paragraph 1(1) of Schedule 1 to the Act adopted by the High Court of Justiciary in Arthur v H. M. Advocate. In our opinion both the expenses of £47.30 and the Sheriff Officer's fees of £36.03 were sums of principal which fell to be taken into account in calculating the amount of the debt owed by the pursuer to the defenders. We are, moreover, satisfied that in a question between the pursuer and the defenders the Sheriff Officer's fees, once incurred, were expenses of diligence which were properly to be regarded as part of the sum owed. Since their amount was regulated by Act of Sederunt, we do not consider that any further voucher is required than the execution of charge, which evidences the fact that they were incurred. We are also of opinion that the defenders' alternative approach is well founded. The fact that the defenders' oath made no reference to accumulated interest does not, in our view, mean that it must be ignored in calculating whether they were qualified creditors. That such interest was due was vouched by the extract decree produced with the oath. For these reasons we are satisfied that the pursuer has not relevantly averred that the amount of the defenders' debt was insufficient to bring them within the definition of qualified creditors.

The pursuer's second main contention was that the decree in absence pronounced on 22 July 1986 was vitiated by failure to cite him properly. The summons was served twice by post, addressed to the pursuer at the address given in the contract on which the present defenders were relying in bringing that action, namely at 2 Hillhead Road, Newtonhill, Stonehaven. On each occasion it was returned marked "refused". The sheriff proceeded to treat that as effective citation, and granted decree in absence. The pursuer avers:

The pursuer's argument was that before proceeding on the basis that there had been effective citation the Sheriff required to be satisfied that the summons had been tendered at the proper address of the defender in that action, and had been deliberately refused by the defender (McGraddie v Clark 1966 SLT (Sh Ct) 36). There was nothing to show how the Sheriff had satisfied himself of these matters. The Sheriff's conclusion had been erroneous in fact. The decree was therefore reducible, as was all that followed on it, including the award of sequestration.

Mrs Smith began by drawing to our attention the terms of Summary Cause Rules 55 and 18, in terms of which the Sheriff had acted in granting decree in absence. Summary Cause Rule 6(1) provides that:

The Sheriff had been entitled to treat the citation as good by virtue of section 4 of the Citation Amendment (Scotland) Act 1882 which provides inter alia as follows:

The address in Newtonhill was to be regarded as still being the pursuer's "dwelling place" and his "proper address", even if he was in fact resident in Whitecairns at the time. A person could have more than one dwelling place. Temporary absence from an address at which a person had been resident before the date of citation and to which he returned thereafter did not deprive that address of the character of his "dwelling place" (Douglas and Heron v Armstrong (1779) M 3700; Fraser v Reid (1821) 1 S 76; Thomson v Handyside (1833) 12 S 557; Gibson v Clark (1895) 23 R 294, per Lord Kincairney (Ordinary) at 298 and Lord Adam at 310).

In our opinion the Sheriff was entitled to infer from the facts that the summons had twice been sent by post to the address given for the pursuer in the contract on which the action was founded, and had twice been returned marked "refused", that the requirements of section 4 of the 1882 Act were satisfied, and was therefore entitled to treat the attempted service as a good citation. But that is not to say that it would not have been open to the pursuer, on discovering that decree in absence had passed against him, to seek to have it set aside, either by way of recall under Summary Cause Rule 19 or (if it was too late for that) by reduction, and for that purpose to seek to prove that at the time when service was attempted, the address in question was not his dwelling place. That is a course which Sheriff Walker contemplated in McGraddie v Clark when he said (at 38):

We are not persuaded that any of the cases cited by Mrs Smith demonstrates conclusively that in the circumstances averred by him the present pursuer would have been unable to show that at the material time the Newtonhill address was not his dwelling place. Had the pursuer raised the matter timeously, therefore, we are of opinion that he might have been entitled to proof before answer in a reduction of the decree in absence. For the reasons which we are about to discuss, however, we do not consider that that course remains available to the pursuer, or that on that ground it is open to him at this stage to seek reduction of the sequestration which followed on the decree in absence.

A similar issue arises in connection with the service of the charge for payment which was served at the Newtonhill address on 25 August 1986. On that occasion there was no refusal, but the charge was left with a Mrs Daniel who, according to the pursuer's averments, was resident there with his permission. Had the pursuer timeously raised the objection that that address was not at the material time his dwelling place, there might have been merit in an attack upon the validity of the service of the charge, and thus on the constitution of apparent insolvency.

At the beginning of her submission Mrs Smith reminded us of the history of the matter. It is now more than twelve years since the decree in absence was obtained and the charge for payment served. It is almost twelve years since sequestration was awarded. It is clear from documents lodged in process by the pursuer (Nos. 16/3 and 16/4 of process) that within a few weeks after the award of sequestration the pursuer, with the benefit of legal advice, was addressing the possibility of seeking recall of the sequestration under sections 16 and 17 of the 1985 Act. No such proceedings were, however, taken. Moreover, it is evident from the Statement of Affairs prepared by the Permanent Trustee (No. 13/5 of process) that the pursuer's liabilities exceeded his assets by more than £500,000. In 1992 the criminal proceedings already referred to took place, yet still no attempt was made to have the sequestration reduced. As already recorded, this action was not raised until December 1996.

Against that background, Mrs Smith submitted that, even if ground for reduction had at one time existed, it was inappropriate that reduction should now be granted. Reduction is not a remedy which is available as of right. It was for the court to consider in the whole circumstances of the case whether it would be right to grant the remedy sought. In Adair v David Colville & Sons Ltd 1926 SC (HL) 51 Viscount Dunedin said (at 55-6):

(See also Philp v Reid 1927 SC 224, per Lord Justice-Clerk Alness at 229-30.) An example of the application of that approach to an attempt to reduce an award of sequestration was to be found in Central Motor Engineering Co v Galbraith 1918 SC 755. In that case the pursuers sought to reduce an award of sequestration two and a half years after its date. The pursuers did not dispute that they had been aware of the award for most of that time, and offered no explanation for their failure to take any earlier steps to recall or reduce the award. Although some of the dicta in the case are expressed in terms of competency, it was the defenders' plea to relevancy which was sustained. Lord President Strathclyde said (at 765):

At 766 his Lordship added:

In our opinion the lapse of time since the pursuer was made aware of the fact that sequestration of his estate had been granted is fatal to his attempt to have the sequestration or the decree on which it proceeded reduced. It is clearly established by the authorities which Mrs Smith cited that reduction is not a remedy to which a pursuer is entitled as of right on proof of some invalidity in the deed or decree under challenge. The availability of another remedy, which has gone unused, is a matter of importance. In the context of the law of bankruptcy, which is regulated by a statutory code, interference by way of reduction is, as was recognised in Central Motor Engineering Co v Galbraith, a matter of particular delicacy. The 1985 Act makes express provision for recall of sequestration, and by section 17(1) confers on this court a wide discretion as to the grounds on which it may recall the award of sequestration. By section 16(4), however, a petition for recall must be presented within 10 weeks after the date of the award. We accept that after the expiry of that period it is competent to seek to have the award set aside by reduction, but it is important not to lose sight of the time limit on the statutory remedy. The longer a sequestration has been proceeding, the more complex and unfortunate are likely to be the consequences of undoing it. Where, as here, the pursuer was aware of the award within the period allowed for recall, and is reported as having been addressing that possibility with the benefit of legal advice, it would in our opinion require averment of wholly exceptional circumstances to make a relevant case for reduction many years later. When account is taken of the fact that the pursuer's estate was evidently grossly insolvent, it becomes hard to see how reduction at this stage could in any circumstances be justified. Although the pursuer makes vague averments about being unable to obtain legal representation to bring this action at an earlier date, there is in our view nothing in his averments to justify his allowing almost ten years to elapse before raising this action. Again, although he avers that he only became aware of the circumstances bearing on the citation in the summary cause in 1997, nothing is said to the effect that it would have been impossible at an earlier date to inquire into the basis on which the sheriff had felt able to grant decree. It seems to us that, for aught the pursuer avers, the present action or a petition for recall raising the same matters could, after proper inquiry, have been brought within a very short time after the award of sequestration. We have no hesitation in concluding that the Temporary Lord Ordinary was right to hold that it would be inappropriate to grant reduction at this stage.

We shall accordingly refuse the reclaiming motion, and adhere to the Temporary Lord Ordinary's interlocutor of 5 June 1998 sustaining the defenders' second plea-in-law and dismissing the action.