Scottish Court of Session Decisions

[1] On 14 August 1996, the respondent James Glasgow was sequestrated. The Noter Lionel Hooke is a creditor, and has submitted a claim in the sequestration. Section 54(1) of the Bankruptcy (Scotland) Act 1985 provides that "Subject to the following provisions of this section the debtor shall be discharged on the expiry of three years from the date of sequestration." Section 54(3) provides that "The permanent trustee or any creditor may, not later than two years and nine months after the date of sequestration, apply to the Sheriff for a deferment of the debtor's discharge by virtue of subsection (1) above." Two years and nine months after the date of the respondent's sequestration, on 14 May 1999, no application for deferment in terms of that subsection had been made. However, in July 1999, the appellant lodged a Note, in which he asked that the Note be received, although late, and sought deferment of the discharge of the debtor for a period of two years. While the lodging of this Note was some two months "late", in terms of the requirements of section 54(3), there was still roughly a month to run before expiry of three years from the date of sequestration and any discharge by virtue of subsection (1).

[2] In applying to the court to allow the Note to be received at a date later than two years and nine months after the date of sequestration, the appellant was relying upon the court's discretion in terms of section 63 of the 1985 Act, which provides at subsection (1) that

Subsection (2) provides that the Sheriff, in an order under subsection (1), may impose conditions, and inter alia may "(c) extend or waive any time limit specified in or under this Act."

[3] It is undisputed that the Sheriff's powers under sections 63(1)(a) and (b) and (2)(c) are such that in appropriate circumstances, he may waive or extend the time limit laid down in section 54(3). A "late" application in terms of section 54(3) could thus be rendered valid, and would not be out of time for the purposes of that subsection. And specifically, it is undisputed that the Note lodged by the appellant in July, although non-timeous in terms of section 54(3) itself, would effectively have become timeous, and be a competent application in terms of section 54(3), if the Sheriff had waived the time requirement contained in that subsection, prior to the expiry of three years from the date of sequestration, on 14 August 1999.

[4] In the present case, after the respondent's Note had been lodged, the Sheriff allowed it to be received and ordered service upon the permanent trustee and the respondent. On behalf of the appellant, it was acknowledged that these steps did not make the Note competent or timeous, but were taken in order that submissions could be made to the Sheriff not only upon the issues raised in the Note under sections 54 and 63, but also upon any question of competency which might arise. After the order for service, some four weeks passed before the Sheriff, on 20 August 1999, allowed a debate. By that time, the period of three years from sequestration had expired. On 22 October, the Sheriff heard a debate, and took the matter to avizandum. On 4 November 1999, he sustained a plea in law for the respondent to the effect that the Note was incompetent, and dismissed the Note. It is against that interlocutor that the appellant appeals.

[5] It is not necessary for us to consider the question of why the appellant did not lodge a Note timeously in terms of section 54(3), or the question of whether the deferment which is sought ought to be granted, if such grant were competent. The Sheriff balanced various factors, and stated that the factor which predominates is the fact "that ex facie there has been an illegal transaction on the part of the debtor". He concludes that it would not have been appropriate to allow a debtor to be discharged without a thorough investigation of matters, where there is a question mark over the propriety of his conduct during the period of his sequestration. If what was described as a "procedural and technical argument" had not succeeded, the Sheriff would have made an order upon the debtor to lodge a declaration in terms of section 54(4)(b) of the 1985 Act. The issue before this court is one of competency, and the interrelation between section 54(1) and the procedural history of the appellant's Note.

[6] When a Note applying for deferment has been lodged within the period of two years and nine months specified in section 54(3), the deferment may of course be granted before the expiry of the three year period specified in section 54(1). If that has happened, the fact of deferment will of course prevent discharge by virtue of section 54(1) upon the expiry of the three year period. But where an application for deferment has not been made within the time limit specified in section 54(3), and granted prior to the expiry of three years from sequestration, questions have arisen, and arise in this case, as to what can prevent or postpone the "automatic" discharge which occurs if and when section 54(1) comes into play.

[7] Where an application for deferment has been made within the time limit specified in section 54(3), and the three year period expires before that application has been disposed of, discharge will not take place automatically upon the expiry of the three years. Without any need for an interim order deferring discharge, discharge under section 54(1) is not to be regarded as automatic. It is subject to the application for deferment being made "and the court pronouncing an order disposing of the application": Clydesdale Bank plc v. Davidson 1993 SC 307, the Lord Justice Clerk at page 311.

[8] Similarly, if an application for deferment in terms of section 54(3) is made "late", but prior to the expiry of the three year period, and the Sheriff has extended or waived the time limit laid down in section 54(3), there is no automatic discharge on the expiry of the three year period. The time limit having been waived, the effect is the same as if it had been complied with: without any need for any interim order deferring discharge, there will be no discharge until the court has disposed of the application: Whittaker's Trustee v. Whittaker 1993 S.C.L.R. 718, Sheriff Principal Nicholson at page 724C-D.

[9] In these situations, where the section 54(3) time limit has either been complied with or waived, and the court has not yet disposed of the application by the date when the three years expire, there is, as we have indicated, no need for any order deferring discharge ad interim: the fact that the court has a valid section 54(3) application before it, which it has not yet disposed of, is sufficient as a matter of law to prevent discharge on expiry of the three years, and postpone it until the application has been disposed of. Interim deferment had been seen as a competent and appropriate mechanism for preventing automatic discharge on expiry of three years, in Pattison v. Halliday 1991 S.L.T. 645. The possibility that an interim order deferring discharge might be required in certain situations had also arisen in Slater Hogg & Howison v. Frew, unreported, 19 May 1992 - a case to which we shall return. But in Clydesdale Bank, the court did not find it necessary to consider whether an interim order deferring discharge was competent. In the present case, no such order was sought. In Whittaker's Trustee, at page 723F, Sheriff Principal Nicholson refers to a possible role for interim deferment of discharge as "a safety precaution which may have to be sought if there is a risk that proceedings might otherwise come to grief prior to their conclusion simply because of the operation of section 54(1)." In their submissions to us, counsel for each party gave some consideration to the possibility that interim deferment might in some situations have a role, in ensuring that there would not be an automatic discharge on the expiry of three years when that might otherwise occur. There was in addition some discussion as to the competency of such an order, whether under section 63 or under section 54(3) itself when the time limit had neither been met nor waived. But on the whole matter, neither the competency nor the usefulness of such an order is in issue in this case, and we do not think it necessary to consider whether or how any such interim order might be competent or appropriate.

[10] On behalf of the appellant, it is submitted that upon the expiry of the three year period, on 14 August 1999, "automatic" discharge was prevented by the fact that an application had been lodged, seeking both deferment in terms of section 54(3) and waiver of time limit in terms of section 63. It was contended that although the section 63 application had not been disposed of before the three years expired, so that at that date the section 54(3) time limit had neither been met nor waived, the fact that there was a Note applying for both waiver and deferment should be regarded as enough, upon an analogy with those cases where the time limit had already been met or waived, to prevent "automatic" discharge under section 54(1) pending disposal of the applications made in the Note.

[11] It was acknowledged that Sheriff Hay's decision in Slater Hogg, which the Sheriff in the present case had followed, could be read as indicating that there would be discharge on the expiry of the three years, the application still being out of time. But reliance was placed upon the view taken by Sheriff Principal Nicholson in Whittaker's Trustee, in a passage at page 724E, in the following terms:

[12] Counsel for the appellant acknowledged that in the present case, one could not say that there was any competent application before the court at the date when the three years expired. But the Note containing the applications had been in court for some time before then; and if the section 63 aspect of the matter had been dealt with (as it might have been) before the expiry of the three years, all would have been well, and there would have been no automatic discharge. The analogy drawn by Sheriff Nicholson was legitimate, and it would be unjust if the date of the section 63 decision had this crucial consequence.

[13] After the decision in Pattison v. Halliday, and before the decision in Clydesdale Bank v. Davidson, it would perhaps be natural to think of interim deferment of discharge as the method, and perhaps the only method, of preventing discharge on the expiry of three years from sequestration, in cases where deferment had not already been granted. It is accordingly unsurprising that in Slater Hogg, the Sheriff Principal focuses upon the absence of any order for interim deferment in coming to the view that discharge on expiry of the three years had not been averted. The possibility that automatic discharge might be postponed, on the basis that proceedings under section 54(3) had been commenced but not disposed of when the triennium expired, was not perhaps perceived as the central issue until the decision in Clydesdale Bank. Moreover, in Slater Hogg, it seems not yet to have been fully appreciated that intervention by the court under section 63, to waive time limits or otherwise, is necessarily the first issue where an application for deferment, under section 54(3), is lodged more than two years and nine months after sequestration. In these circumstances, when the present case came before the Sheriff, there was at least a question as to whether Sheriff Principal Hay's decision in Slater Hogg was to be regarded as binding and determinative of the issue in the present case, particularly in the light of the subsequent decisions in Clydesdale Bank and Whittaker.

[14] In this court, however, the question of whether Sheriff Principal Hay's decision was binding upon the Sheriff has no real significance. What is perhaps worth noting, in relation to Sheriff Principal Hay's decision, is his rejection of the argument that presentation of the Note was sufficient in itself to prevent the operation of section 54(1); and that the case was one where the noter was invoking section 63, and seeking to be relieved of his failure to comply with the section 54(3) time limit. Whatever the mechanisms might be for preventing automatic discharge on expiry of three years, it seems clear that Sheriff Principal Hay was satisfied that the simple lodging of applications, which had not been disposed of on the expiry of three years, could not be regarded as preventing or postponing automatic discharge at that date.

[15] Counsel for the appellant submitted that the decision in Slater Hogg was of little value, given that it was prior to the decisions in Clydesdale Bank and Whittaker. In any event, in the light of those decisions, Sheriff Principal Hay's conclusions should be regarded as unsound. Sheriff Principal Nicholson's conclusion in Whittaker was directly supportive of the appellant's contention that his Note having been lodged, discharge on 14 August 1999 could not occur, and must await a decision in relation to the points raised in the Note. It was accepted that at the theoretical level, a distinction could be drawn between cases where the application was known not to be out of time when the crucial date of the expiry of three years arrived, and cases such as the present, in which, at that date, the validity of the section 54(3) application was dependent upon a future waiver by the court under section 63. It was moreover acknowledged that Sheriff Nicholson, in Whittaker, had not really explained why a case in this category should be treated as if it was one in which there was a current section 54(3) application, despite the alternative view that that could not be said, unless and until the section 63 application had resulted in waiver.

[16] The submission that the lodging of these applications in the form of a Note should be treated as postponing discharge, until the applications were disposed of, rested therefore not only on Sheriff Nicholson's conclusion, but upon broader arguments. And these broader arguments did not turn upon analysis of the statutory provisions, but upon a consideration of the consequences which might flow from allowing discharge to occur automatically under section 54(1) notwithstanding the fact of application having been made for waiver under section 63, as a basis for the further application for deferment under section 54(3) itself. Emphasis was laid upon the possibility of delay, after applications of this kind had been lodged in court. Not only was there the possibility that the Sheriff would not have dealt with the applications before expiry of the three years, but there was the further possibility of appeal, which was likely to mean that there would have been no disposal of the applications until after the three years had expired. The consideration which had weighed with the court in Clydesdale Bank, in relation to timeous applications, that there might be no disposal before expiry of the three years, and that Parliament could not have intended the application to fall by automatic discharge before it was dealt with, applied equally to cases where a section 54(3) application had been lodged, and would be valid if waiver under section 63 were to be obtained. It was accepted that if an order for interim deferment was competent, that might provide an alternative means of preventing the automatic discharge. But whether one envisaged an application for interim deferment, shortly before the three years expired, or an application for waiver being brought before the court at that same stage, the matter should be tested by reference to extreme situations. Whether one was seeking interim deferment, or a section 63 waiver, there would be cases in which that could not be achieved, because of the shortness of time before the date of expiry of the three year period, or non-availability of a Sheriff or the like. The possibility of a caveat must be borne in mind, as well as the possibility of appeal. Even if, as in the present case, the Note had been lodged quite some time before the triennium was due to expire, there might be good and indeed unavoidable reasons for deferment or waiver not being obtained before the period had expired. Section 54 was open to interpretation, and the court should prefer an interpretation according to which the simple lodging of a Note such as this would postpone automatic discharge until the Note had been dealt with.

[17] In these circumstances we were asked to allow the appeal, recall the Sheriff's interlocutors of 4 and 18 November 1999, repel the appellant's plea to the competency, and waive the section 54(3) time limit. That having been done, the respondent should be ordered to lodge a declaration in terms of section 54(4)(b) of the 1985 Act, within 14 days of this court's interlocutor.

[18] In asking us to refuse the appeal, and to sustain the Sheriff's interlocutors, counsel for the respondent submitted that the critical question was whether the opening words of section 54(1) applied to this case, so as to prevent the substantive provisions of that subsection taking effect on expiry of the three years. In considering that question, one must be careful to distinguish between timeous applications, and applications which were out of time, in terms of section 54(3). There was no doubt that the application in the present case had been made out of time, so that on and after its lodging it was not (as a timeous application would have been) a proceeding conform to section 54(3), to which the provisions of section 54(1) would be subject. It was true that the status of the application could be altered, if the court waived the time limit requirement under section 54(3). But the out of time application would only be transformed into an application conform to section 54(3) if and when this waiver was actually made. Until then, the application was not an application under or in terms of section 54(3), to which section 54(1) would be subject. It was in truth, at that stage, only an application in terms of section 63 - although of course in terms of the Note, once that matter had been disposed of, deferment in terms of section 54(3) could be applied for. It was of course also acknowledged that if it were competent for the court to take other interim measures deferring discharge, that could result in deferment. But in this case it was not merely such other interim measures which the appellant had abstained from seeking. He had not, prior to the expiry of three years, sought waiver of the section 54(3) time limit in terms of the Note which he had lodged. The three years had expired before this relief was sought. Discharge had accordingly occurred, and it was too late to seek relief under section 63 as a preliminary to seeking deferment under section 54(3).

[19] In regard to the terms of section 54, counsel for the respondent submitted that the court in Clydesdale Bank were right in seeing the opening words of section 54(1) as crucial. Taking that as the starting point, and considering whether there was anything in the remainder of the section which would prevent automatic discharge on the expiry of three years, it was submitted that the time limit was an integral part of section 54(3). It was entirely appropriate that an application submitted within the time limit should be regarded as a procedure within that subsection, to which section 54(1) would be subject. The existence of section 63 did not alter that position: section 63 proceeded upon the basis that there had been a failure to comply with some relevant provision and that failure was to be seen as persisting unless and until the powers under section 63 were actually used to cure the failure, and turn the proceedings into proceedings within section 54(3). A non-timeous application was non-timeous, and outwith the terms of section 54(3) unless and until the court waived the time requirement which had not been met.

[20] Against that background, it was submitted that Sheriff Principal Nicholson had been in error in Whittaker, in treating a case such as this as one where there was "a section 54(3) application before the court". There was no such application. That would be an entirely inappropriate description of an application which ex hypothesi did not meet the requirements of section 54(3). And while waiver of the time limit would mean that the application was no longer out of time, and in breach of the requirements of section 54(3), there was no rational basis for treating an out of time application as meeting requirements which ex hypothesi it did not meet, merely because, when it was made, an application for waiver of the time requirements had been incorporated in the same Note. Incorporation of such an application in a Note, without seeking and obtaining the waiver before expiry of the three year period, could not be regarded as transforming the out of time application into an application which met the requirements of section 54(3), and thus took precedence over the provision contained in section 54(1). The distinction was particularly clear in a case such as this, where the appellant could clearly have sought an actual order under section 63 in terms of his Note at any time during a period of weeks before the three years expired. That had not been done, and by the time the matter came before the Sheriff, discharge had occurred and waiver of the time limit under section 54(3) could not achieve what was wanted - a valid application for deferment, which would prevent discharge when the three years expired.

[21] Before discussing submissions further, we would observe that the introduction of "automatic" discharge, by virtue of section 54(1) of the 1985 Act, confers an important primary right upon a bankrupt, which he should lose only in circumstances where Parliament intends that he should lose it. Section 54(1) is made subject to the other provisions of the section; but it is no part of the court's function to deprive the bankrupt of this right otherwise. Section 54(3) provides for a procedure, itself subject to a time limit, by which the bankrupt may be deprived of the right which he would otherwise enjoy under section 54(1). And the powers of the court under section 63 extend the possibility that that right will be lost by opening up the possibility that there will be a valid section 54(3) application commenced later than the section 54(3) time limit. It must be acknowledged, as with any deadline, that as the deadline is approached, a stage will be reached where it is too late to intervene before it comes. Parliament plainly regards that as acceptable, when it decides to lay down a deadline. There will always be cases in which intervention comes just too late, and in which that seems unfair by comparison with an intervention which is just in time.

[22] Nonetheless we are not persuaded that these considerations assist in interpretation. In our opinion the contentions advanced by the respondent are sound. Potential waiver is not actual waiver. On 14 August 1999 there was no application of the type provided for in terms of section 54(3). The structure of deadlines means that a person who wishes to prevent or postpone "automatic" discharge will have to move quite rapidly if for any reason he is "late" with his application for deferment and is seeking waiver under section 63. But in general we see no reason to suppose that in urgent cases the courts would feel obliged to refuse to use its powers under section 63 if the three year period were about to expire, and there was a prima facie basis for some deferment. We appreciate that on occasions the automatic discharge would nonetheless have occurred before any waiver (or interim discharge) could be obtained. But that is an inevitable concomitant of a provision such as section 54(1), and is the evident intention of Parliament. We refuse the appeal and uphold the Sheriff's interlocutors.