Scottish Court of Session Decisions

The petitioners are the professional body, incorporated by Royal Charter, responsible for the regulation of Chartered Accountants. They have powers of discipline over CAs and these include power to withdraw a CA's practicing certificate. Such action would prohibit the person concerned from holding himself out as a CA but would not prevent him carrying on a business, including one which involved the provision of certain accountancy services. The respondent was admitted as a CA in 1995 but on 3 November 2000 the petitioners notified him that they had applied to their Disciplinary Committee for an interim order suspending his practising certificate in terms of their Disciplinary Rules. That application arose out of certain complaints from clients. The petitioner did not resist the interim order and it was granted on 18 December 2000. Further intimation was made to the respondent that certain hearings on the complaints were to take place on certain dates but the respondent did not attend any of these hearings. On 23 February 2001 the Disciplinary Committee found that he had breached rule 57A(1)(a) of the petitioners' rules (misconduct) in that he had failed to reply to letters of complaint as required by the petitioners. On 30 April 2001, the Discipline Committee determined that his practising certificate be withdrawn in terms of rule 60(3)(a)(A)(iv). That decision was intimated to the respondent on 1 May and advertised in the national and local press.

The petitioners aver that, despite their actions, they understand that the respondent continues to carry on business and to hold himself out as a CA. This understanding seems to have been partly gleaned through a telephone conversation with his secretary. The petitioners have also received further complaints about the petitioner failing to hand over files to substitute accountants. They then aver :

The prayer of the petition asks the court to appoint a named person :

It continues by seeking the appointment of the same person as judicial factor and "for that purpose to sequestrate the estates of the respondent". The remedy sought therefore against the respondent for allegedly carrying on business and holding himself out as a CA is to sequestrate his whole estate immediately and to appoint a factor over it also immediately.

On 11 July 2001, the petitioners obtained the interim orders sought. The motion was not intimated to the respondent and the orders were sought prior to service of the petition. The interim judicial factor entered upon his duties and produced an estimated state of affairs as at 16 July 2001, which showed a surplus of assets over liabilities to the extent of in excess of £80,000. The matter came before me on 26 July on a motion to recall the interim orders.

Counsel for the respondent maintained that there was no legal basis averred for the appointment of a judicial factor on the respondent's estate. The petition was said to be at common law yet the averred basis did not seem to fit with any of the normal categories for the appointment of a factor. The petitioners' rules, under a chapter headed "Bankruptcy etc." do make reference to the possibility of the petitioners, through their Investigation Committee, seeking the appointment of a judicial factor (rule 65A) but in that case, it is specifically provided that there should be intimation of the hearing of such an application to the member. No such intimation had been made here and, accordingly, the petitioners seemed to be in breach of their own rules.

In the parallel case of solicitors, it was possible for the Council of the Law Society to apply for the appointment of a judicial factor and for the court to grant such an application. However, the power of the court in that regard was regulated by statute, namely section 41 of the Solicitors (Scotland) Act 1980 (c 46). Even then, the grounds had to be not only a breach of the accounts rules applying to solicitors but, in connection with his practice, either the solicitor's liabilities had to exceed his assets (or might do) or a claim under the Guarantee Fund was anticipated. The Law Society, of course, through the Fund, may effectively become a creditor on the estate of a defaulting solicitor or at least have an active financial interest in that estate. Even then, there is specific provision for intimation of the application to the solicitor concerned.

The remedy of appointment of a judicial factor is a most extreme remedy (McCulloch v McCulloch 1953 SC 189, LP (Cooper) at 192) and should only be granted where no other appropriate remedy is available (Irons : Judicial Factors p 5; Bannatyne Petitioners (1827) 5 S 638). That was not the case here where remedies such as delivery of papers and/or interdict preventing the respondent from holding himself out as a CA were available. There was no suggestion that the respondent was insolvent. He had a large number of clients and the current application would do considerable damage to his business at a time when he was intending to sell it.

Counsel for the petitioners submitted that the procedure was at an early stage and, although competency may be an issue for debate in due course, it could not be said that the remedy sought was obviously or manifestly incompetent. The petition was brought at common law and not in terms of the petitioners' rules. It was long settled that the categories of situations where the court might appoint a judicial factor were not closed and the underlying principle was that one could be appointed to protect against any potential loss or injustice (Leslie's Judicial Factor 1922 SC 464, LP (Clyde) at 469. The purpose here was to see that the respondent's estate was ingathered and administered so as to preserve its value ultimately for the benefit of the respondent himself. Ultimately, the petitioners would seek power to sell the respondent's practice for his benefit and that of any creditors.

Counsel was unable to explain why it was deemed appropriate to seek the interim orders without prior intimation but referred to the petitioners continuing concerns arising from further complaints about the respondent. Having regard to the petitioners' functions relative to CAs, he submitted that the interim orders should stand.

In Leslie's Judicial Factor (supra) the Lord President said (p. 469) :

It can be seen from the various categories, albeit that they are no doubt not closed, that they involve situations where, in broad terms, there is no effective management of an estate or that management is deadlocked or there is an estate which requires to be preserved pending a resolution of disputes about it (e.g. litigation or bankruptcy). In all of these cases the remedy of appointing a judicial factor may be the only way of protecting an estate for behoof of those entitled to it. In each case it is important to note that the idea is preservation and management of estate and not some other purpose which can be achieved using the ordinary remedies of the Court.

There is in the present case no suggestion that the respondent falls into the category of persons incapable of managing their own estate. It is over the respondent's whole estate that the judicial factor is currently appointed. He may be, and I accept for present purposes that he is, a person presently unfit to carry on practice as a CA. If that is so and he is holding himself out as a CA then the ordinary remedy of interdict is one obvious option which might be adopted. The seizure of the respondent's assets by way of "interim sequestration" and the appointment of a judicial factor for the purpose of stopping the respondent from continuing so to hold himself out is not a competent, appropriate or reasonable option. The petitioners have no apparent interest in the respondent's estate. They are neither creditors nor potential creditors. In that sense, they are not in the same position as the Council of the Law Society in respect of solicitors where, even then, specific statutory powers are in place. These powers are, not surprisingly, limited to situations where financial problems with the solicitor's estate may arise. No such problems are suggested here.

For similar reasons relative to the respondent's solvency, I have been unable to discover in the petition or in the submissions any colourable basis in law for the petitioners seeking to sequestrate the estate of the respondent. Equally, I am unable to ascertain what valid basis there might be for an order for what has been described in the petition as a "sequestration ad interim". There may be situations in which it may be legitimate for the petitioners to seek sequestration of one of their member's estates and the appointment of a factor but the present circumstances do not permit such a remedy. For all these reasons I will recall the interim orders made.

I should add that I view with some concern that the petitioners sought interim orders, the effect of which was to remove the respondent's estate from him, without seeking to intimate the petition or the date of the hearing to him. Given the timescale which had elapsed during the course of the disciplinary proceedings and, indeed, the date of the final decision to withdraw the respondent's certificate relative to the date of the petition, it is difficult to perceive of any reason why reasonable notice of the application should not have been given to the respondent and no such reason was proffered at the bar. As the Lord President (Cooper) said in McCulloch v McCulloch (supra) p 192 :

Unless there is reason to suppose that intimation of the motion for interim orders is likely to add to that jeopardy, a respondent ought to be given the opportunity to be heard on the motion before potentially losing his estate.