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Cite as: [2004] ScotCS 183

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Frost & Anor v Cintec International [2004] ScotCS 183 (24 June 2004)

OUTER HOUSE, COURT OF SESSION

A1316/03

OPINION OF

R F MACDONALD QC

(Sitting as a Temporary Judge)

in the cause

MARTIN FROST and JOHN PARKES

Pursuers

against

CINTEC INTERNATIONAL LTD

Defenders

________________

Pursuers: Party Pursuers

Defenders: Murphy QC; Shepherd & Wedderburn

24 June 2004

[1] In this action the pursuers, each of whom is a party litigant and bankrupt, seek interdicts, accounting and damages against the defenders for alleged patent infringement. The defenders, who are a company incorporated under the laws of England and Wales at an address in Newport, have entered appearance for the sole purpose of taking a plea of no jurisdiction. The action first called before me on 11 June 2004 at a procedural hearing under Rule of Court 55.3 when, having heard submissions from the pursuers themselves and from counsel for the defenders, I appointed the cause to the procedure roll on the defenders' plea of no jurisdiction, appointed the defenders to lodge a note of argument within 14 days and the pursuers to lodge a note of argument within 14 days thereafter and ordained the pursuers jointly and severally within 14 days to consign the sum of £22,500 in the name of the Accountant of Court to await the further orders of the court as security for past and future expenses of the action. On that date Mr Parkes alone moved for leave to reclaim on the issue of consignation and I refused him leave to reclaim.

[2] On 24 June 2004 the action again called before me when I heard two motions on behalf of Mr Frost. The first motion sought leave to reclaim my interlocutor of 11 June 2004 so far as it rated to caution (sic) and the amount of that caution (sic). The second motion was to sist the cause "to a time two weeks following the appointment of a permanent trustee either on Martin Frost's estate or John Parkes' estate, whichever be the later". After hearing submissions I refused both these motions. A reclaiming motion has now been enrolled by both pursuers against my interlocutor of 24 June 2004 in so far as it refused to sist the action.

[3] The action was raised in July 2003. Between 24 and 30 September 2003 a five day trial in a threats action under Section 70 of the Patents Act 1997, in which the defenders were the claimants and the pursuers were the defendants, took place before Laddie J in the Chancery Division of the High Court of Justice in London. The defenders were successful in that action and the pursuers were found liable in costs. The defenders were also successful in the counterclaim brought against them by the pursuers, which consisted of a claim for infringement of four of the patents which form the subject matter of the present action. I was told that the pursuers accepted at the English trial that there had been no infringement of the other patents which are the subject matter of the present action. The information provided to me at the hearing of the motion on 11 June 2004 was that the defenders' costs in the English action amounted to approximately £220,000 and that they had obtained an enforceable judgement for £90,000. Attempts at enforcing that judgement had been unsuccessful and they had therefore petitioned for the sequestration of both pursuers. Mr Frost was sequestrated at Jedburgh Sheriff Court on 1 April 2004 (and he had subsequently brought a petition for recall of sequestration) and Mr Parkes had been sequestrated at Edinburgh Sheriff Court the previous day, 10 June 2004. I made the order ordaining the pursuers jointly and severally within 14 days of 11 June 2004 to consign the sum of £22,500 in the name of the Accountant of Court to await the further orders of the court as security for past and future expenses of the action in accordance with the normal rule that a bankrupt pursuer must find caution or consignation for expenses unless there are exceptional circumstances: Wallace on Bankruptcy, 2^nd Ed, page 182. I considered that there were no exceptional circumstances and further, even if they had not been sequestrated, that such an order should still be made as they were judgement debtors to the defenders in the sum of £90,000, being the costs of the English action in which they had been unsuccessful. I refused both pursuers leave to reclaim against the order for consignation as I considered that the issue was one for the exercise of my discretion and that no particular point arose to warrant the bringing of a reclaiming motion.

[4] At the hearing on 24 June 2004 Mr Frost, in moving for the action to be sisted, submitted that it was normal practice for an action to be sisted to allow a permanent trustee to be appointed. He said that there were "countless authorities" to that effect and that the sisting of the action would also provide additional time for caution (sic) to be found. In opposing the motion Mr Murphy QC for the defenders submitted that the motion was an attempt to negate the effect of my interlocutor of 11 June 2004 ordering consignation and that it should be refused for that reason alone. The motion for a sist was simply a mechanism for undoing my previous order. The interim trustee could not interfere in the present action unless he was sanctioned to do so for the purpose of the preservation of the estate, which did not vest in him as interim trustee as there was no act and warrant in his favour. Reference was made to the provisions of the Bankruptcy (Scotland) Act 1985 dealing with the powers of an interim trustee, and, in particular, sections 2(4), 3(1) and 18(1), (3)(c) and (4). In relation to a permanent trustee, reference was made to sections 25(2), 31(1) and (4)(b) and 39(2)(a). The last mentioned provision provided that the permanent trustee may "bring, defend or continue any legal proceedings relating to the estates of the debtor". Although the interim trustee was a creation of the 1985 Act, from 1853 until 1933 it had been possible for an interim factor to be appointed and from 1933 until 1985 it had been possible for an interim judicial factor to be appointed where the court considered that such an appointment was necessary in order to preserve the estate of the debtor. It was ludicrous to suggest that there was some kind of black hole during the period between the appointment of the interim trustee and the appointment of the permanent trustee and that during this period the defenders would just have to "grin and bear it" when it was being suggested that their products were dangerous. In the case of Unity Trust Bank Plc v Frost & Frost, to which Mr Frost had referred at the hearing on 11 June 2004, Lady Smith had refused a sist to Mr Frost as a defender and ordered further procedure.

[5] In response to the submissions made by Mr Murphy, Mr Frost submitted that it was prejudicial to his creditors that I had ordained him to find consignation. By doing so I had removed the choice from the permanent trustee and was prejudicing the creditors. In the case of Unity Trust Bank Plc v Frost & Frost, the case was sent to procedure roll on his counterclaim and he was therefore in that action in the position of a pursuer. The defenders here were endeavouring to prejudice the interests of the creditors as a body by removing the power of the permanent trustee to make a decision to continue with the present action. His creditors would therefore suffer a loss of opportunity which was prejudicial to them. If he could not find consignation, the action was effectively dead. That was a significant point. As soon as he was sequestrated, he could not litigate until that right was passed back to him. He asserted that I did not have the authority to ordain him to find consignation. The action was part of his sequestrated estate and he had no authority over it. He could not continue to pursue the action, nor was he intending to do so, until it was given back to him. He said that I was "turning bankruptcy law upside down". The statement in Wallace on Bankruptcy at page 182 was made prior to the 1985 Act.

[6] I refused the motion to sist as I considered that there were no circumstances justifying a sist, and also because the sisting of the action would have the practical effect of negating my interlocutor of 11 June 2004 in so far as it ordained the pursuers to consign the sum of £22,500. I was aware of the fact that Mr Frost had brought a petition for recall of his sequestration. At the hearing on 11 June 2004 Mr Frost told me that a meeting of creditors would take place at the end of June or beginning of July and that a permanent trustee would be appointed in the first week of July or earlier. He also stated that the permanent trustee could then make a decision on whether to continue with the action. No documentary evidence was produced by Mr Frost to support these assertions and I considered that I was entitled to be sceptical about any unsupported statement of fact made by Mr Frost in light of the observations made about him by Laddie J at paragraphs 81-83 of his approved judgment (7/2 of process). As a petition for recall of sequestration had been brought by Mr Frost, it seemed to me that any statement about the timetabling for a meeting of creditors and the appointment of a permanent trustee was at least questionable. Contrary to the submission of Mr Frost, I saw no legal prohibition against his continuing with this action during the period of appointment of the interim trustee. The defenders were hoping that the procedure roll hearing to debate their plea of no jurisdiction would be fixed for September or October 2004 (on the assumption that the order for consignation was obtempered). Sisting the action would have had the likely effect of preventing a procedure roll hearing in September or October, a consequence which in my view was highly undesirable. It seemed to me that the defenders were entitled to have their place of no jurisdiction considered by the court at as early a date as possible in view of the potential damage to their business from the existence of this action.

[7] On receipt of the papers for the purpose of writing this Opinion, I have had sight of a letter to the Deputy Principal Clerk of Session dated 23 June 2004 from solicitors acting on behalf of the interim trustee in which it is stated that the interim trustee respectfully suggests that it would be appropriate to sist the proceedings (not least because of the retrospective effect of the vesting provisions contained in the Bankruptcy (Scotland) Act 1985 on Mr Frost's title to sue the action and - potentially - on the competency of the procedure in the interim) until the appointment of the permanent trustee. There is a stamp on this letter with the words CONFIRMATION OF FAX. This letter was not produced to me, nor was any reference made to it by Mr Frost, in the course of the hearing of the motion on 24 June 2004. I do not know whether Mr Frost was aware of the contents of this letter or had a copy of it in his possession when the motion was heard. If this letter had been produced to me at the hearing of the motion for a sist of the action, I would have considered its contents and any submissions made about it by Mr Frost and Mr Murphy QC. As the letter was not produced and I heard no submissions about its contents, I am unable to say what effect, if any, it would have had upon my consideration of the motion.