Parkes v. Cintec International Ltd+ & Anor [2005] ScotCS CSOH_98 (26 July 2005)
OUTER HOUSE, COURT OF SESSION [2005] CSOH 98 |
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P906/04
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OPINION OF LORD MACPHAIL in the petition of JOHN PARKES Petitioner; against CINTEC INTERNATIONAL LTD First Respondents: and THE ACCOUNTANT IN BANKRUPTCY Second Respondents:
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Petitioner: Party
First Respondents: L Murphy, Q.C.; Shepherd & Wedderburn
Second Respondents: Kinroy, Q.C.; Bonar Mackenzie W.S.
26 July 2005
1. Introduction
[1] This is a debtor's petition for recall of an award of sequestration. The first respondents are the petitioning creditors and the second respondent is the Accountant in Bankruptcy who is the permanent trustee on the petitioner's sequestrated estate. [2] The first respondents raised an action against the petitioner and another in the Chancery Division of the High Court of Justice in England. The first respondents succeeded in their claim, and the defendants were found jointly and severally liable to pay them by 30 October 2003 the sum of £90,000 as an interim payment on account of their costs. That sum was not paid, and the first respondents duly obtained and registered a certificate in terms of Schedule 6 to the Civil Jurisdiction and Judgments Act 1982 for the purpose of securing the enforcement of the interim costs order in Scotland. A charge for payment was served on the petitioner on 3 February 2004, and the days of charge expired without payment. The petitioner thus became apparently insolvent in terms of section 7(1)(c)(ii) of the Bankruptcy (Scotland) Act 1985 ("the Act"), and the first respondents presented a petition for his sequestration to the Sheriff Court at Edinburgh. He did not pay or satisfy the debt in respect of which he had become apparently insolvent, or produce written evidence of the payment or satisfaction of the debt, or give or show that there was sufficient security for the payment of the debt. Had he done so, sequestration would not have been awarded (Act, section 12(3A)). The petitioner was accordingly sequestrated by an award made in the Sheriff Court at Edinburgh on 10 June 2004. The Accountant in Bankruptcy was in due course appointed permanent trustee. The sequestration continues notwithstanding the presentation of this petition (Act, section 16(5)). [3] The present petition for recall of sequestration was warranted on 22 June 2004. The petitioner did not, however, advertise and serve it until after the Court ordained him to do so on 25 January 2005 on a motion by the first respondents. Answers were lodged by the first and second respondents, and a hearing on the petition and answers took place before me on 14 July 2005. The petitioner appeared on his own behalf, and each of the respondents was represented by senior counsel. [4] The averments in the petition are very brief. Article 1 narrates the award of sequestration. The following articles are in these terms:"2. That at the hearing before the Sheriff the petitioner was a party litigant with no representation by a solicitor or advocate.
3. That the assets of the petitioner exceeds [sic] the petitioner's debts and under the provisions of the Bankruptcy Act (Scotland) 1965 [sic] the petitioner was in a position to grant a security for the sum sued for by the respondents.
4. That the petitioner can not properly be described as apparently insolvent as is required in terms of the Bankruptcy Act (Scotland) 1985 [sic] due to the imposition by the respondents of a freezing order from the High Court in England."
There are no averments of any irregularity in the proceedings in the sheriff court or in the procedure under Schedule 6 to the Civil Jurisdiction and Judgments Act 1982.
[5] The first respondents' pleas-in-law are in these terms:"1. The petitioner's averments being irrelevant et separatim lacking in specification, the petition should be dismissed.
2. The petitioner's averments, in so far as material, being unfounded in fact, the prayer of the petition should be refused."
The second respondent states identical pleas and in addition:
"3. There being no grounds on which to exercise the discretion in section 17(1) of the Bankruptcy (Scotland) Act 1985 as amended, the prayer of the petition should be refused.
4. In any event in the circumstances hereinbefore condescended upon, recall of the sequestration should not be granted."
"(1) The Court of Session may recall an award of sequestration if it is satisfied that in all the circumstances of the case (including those arising after the date of the award of sequestration) it is appropriate to do so and, without prejudice to the foregoing generality, may recall the award if it is satisfied that -
(a) the debtor has paid his debts in full or has given sufficient security for their payment."
Paragraphs (b) and (c) are not material in the present case. The procedure under the section has two important features. First, the section confers a very wide discretion on the Court (Grantly Developments v Clydesdale Bank plc, Extra Division, 14 March 2002, unreported; see also Button v Royal Bank of Scotland plc, Outer House, 22 July 1987, unreported; Martin v Martin's Trustee 1994 SLT 261). Secondly, a hearing on a petition and answers is not necessarily limited to consideration of the relevancy and specification of parties' pleadings but allows the court to consider more broadly the contentions of parties, including the significance of any documents and the state of the pleadings of parties taken as a whole (Grantly Developments per Lord Hamilton at paragraph [2]).
2. Relevancy
[8] At the hearing, the first respondents insisted in their preliminary plea. The second respondent, while generally adopting the submissions of the first respondents on relevancy, moved me to dispose of the petition on its merits. I shall consider first the issue of relevancy. The petitioner did not reply to counsel's submissions on relevancy, although I invited him to do so. In my opinion the petitioner's averments are irrelevant for the reasons given by counsel, which I now summarise. [9] The statement in article 2 that at the hearing before the sheriff the petitioner was a party litigant is nothing to the purpose. In article 3 it is said, first, that "the assets of the petitioner exceeds the petitioner's debts". It is not clear whether that is intended to mean that his assets exceed his debts now, or that they exceeded them at the date of the hearing before the sheriff. In any event, the matter is irrelevant to the issue of apparent insolvency. The question whether the petitioner was apparently insolvent fell to be determined by the application of the tests prescribed by section 7(1) of the Act; and, as I have noted, he became apparently insolvent in terms of section 7(1)(c)(ii). Secondly, it is said in article 3 that "the petitioner was in a position to grant a security for the sum sued for by the respondents". No further specification is given, but in any event, whether he was "in a position" to do so was neither here nor there: section 12(3A)(b) of the Act required him to give or show that there was sufficient security for the payment of the debt, and to do so "forthwith" (Commissioners of Customs and Excise v Zaoui 2002 SLT 201). The petitioner failed to comply with that statutory requirement. [10] The petitioner's averments in article 4 are also, in my view, irrelevant. First, at risk of repetition, the issue of apparent insolvency fell to be determined by the application of section 7(1). The order referred to is not among the types of order affecting the debtor's property which are specified at the end of section 7(1)(c).Secondly, the investigation of the petitioner's financial position is not a matter for proof in these proceedings, but for investigation by the permanent trustee (Grantly Developments, Lord Hamilton at paragraph [8], Lord Emslie at paragraph [6]). Thirdly, it is not open this Court in these proceedings to review an order of a foreign court where there has been no judicial determination by any court that the foreign court was not competent to pronounce the order in question (Clarke v Fennoscandia Ltd (No 3) 2005 SLT 511, paragraphs [32], [38]). In any event the petitioner does not specify any reason why the order to which he refers necessarily had or continues to have the consequence that he is apparently insolvent. Lest it be thought that I have overlooked it, I refer to Michie v Young 1962 SLT (Notes) 70, where sequestration was recalled on the debtor's offering to prove that he had sufficient funds to meet the petitioning creditor's debt but arrestments prevented him from making payment. That was a decision under the Bankruptcy (Scotland) Act 1913 the effect of which, unlike the 1985 Act, was that when the statutory conditions were met, insolvency was not established but was presumed, the presumption being a presumptio juris which the debtor was entitled to rebut by proof (Wallace on Bankruptcy (2nd ed) pages 29-30; Goudie on Bankruptcy (4th ed) page 64).
[11] I would therefore be prepared to sustain the respondents' pleas to relevancy and dismiss the petition.3. Merits
[12] I consider, however, that the primary issue in these proceedings is whether the Court should exercise its discretion under section 17(1) of the Act. I shall therefore dispose of the petition on its merits, on the basis of the information and materials before me. As I have already noted, section 17(1) provides that the Court may exercise its discretion to recall the award of sequestration "if it is satisfied that in all the circumstances of the case (including those arising after the date of the award of sequestration) it is appropriate to do so." [13] Senior counsel for the first respondents explained the background to the matter. I now summarise the information counsel provided. The first respondents are engaged in the business of designing, producing and selling products for the protection and strengthening of buildings against blasts. In particular, they have developed a blast protection system called the "Waterwall" system which uses water-filled containers to absorb the force of explosions. The petitioner is the proprietor of numerous patents relating to blast protection. On 3 July 2003 the petitioner and a man named Martin Frost obtained a warrant on a Court of Session summons in which the first respondents were called as defenders. The summons contained conclusions for interdict against the infringement of patents and for damages of £25,000,000. The petitioner and Frost did not lodge the summons for calling but advised a number of the first respondents' customers of their dispute with the first respondents and threatened these customers with patent infringement proceedings. That caused the first respondents to raise in the High Court in England a threats action under section 70 of the Patents Act 1977 against the petitioner and Frost for making groundless threats of patent infringement proceedings to the first respondents and a number of their customers or potential customers. This is the action referred to in paragraph [2] above. The two defendants lodged a counter-claim for damages for infringement of certain patents. The case was tried by Laddie J. The first respondents were substantially successful in the principal action, and the petitioner and Frost completely failed in their counter-claim. The Court also made the interim costs order to which I have referred in paragraph [2] above. Laddie J's judgment has not been successfully appealed and is now final. Nothing has been paid towards the interim costs order of £90,000. The taxing master has now taxed the first respondents' final account at approximately £206,000. Meanwhile, the Court of Session action at the instance of the petitioner and Frost has proceeded. The first respondents stated a plea of no jurisdiction in that action. Lord McEwan recently heard parties in debate on that plea and that case is at present at avizandum. [14] The following is the history of events relative to the freezing order of which the petitioner complains. The interim costs order is paragraph 9 of Laddie J's final order of 16 October 2003 (no 7/8 of process). It is important to notice that the petitioner consented to the order by signing at the end a declaration to that effect. Paragraph 9 provides:"9. the defendants shall be jointly and severally liable to pay, as an interim payment on account of the Claimant's aforementioned costs of the action, the sum of £90,000 to the Claimant by Thursday 30th October 2003, provided that this paragraph is stayed upon the following terms: [ . . . ]
(iii) the First Defendant [the petitioner] shall undertake as soon as practicable to register a charge on his house [the address in Edinburgh is given] by way of security for the Defendants' liability for costs herein;
(iv) in pursuance of subparagraph (iii), the First Defendant undertakes as soon as possible:
(a) to procure that the Title Deeds are lent to the Claimant's Scottish solicitors to enable them to prepare the documentation relating to the charge; and
(b) to procure any necessary consent by the first and any subsequent charge holder to the creation of a charge in favour of the Claimant."
The petitioner did not comply with either subparagraph. If he had provided the security referred to in subparagraph (iii), the order would have been stayed. Since he was inactive, the interim costs order became enforceable on 30 October 2003.
[15] Nothing having been paid, on 5 February 2004 Laddie J on the application of the first respondents made a freezing injunction against both defendants (no 7/10 of process). It provides, inter alia:"5. Subject to paragraphs set out below, until the return date or further order of the court, the Respondent must not -
(a) remove from England and Wales any of his assets which are in England and Wales up to the value of £185,000; or
(b) in any way dispose of, deal with or diminish the value of any of his assets whether they are in or outside England and Wales up to the same value."
Paragraph 10(1)(a) requires the petitioner forthwith to inform the first respondents' solicitors of the location of the deeds to his house, and paragraph 10(1)(c) requires him within 48 hours of service of the order and to the best of his ability to inform these solicitors of all his other assets worldwide whether in his own name or not and whether solely or jointly owned, giving the value, location and details of all such assets.
[16] Under the heading "Exceptions to this order" paragraph 12(3) provides:"This order will cease to have effect if the Respondent -
(a) provide security by paying the sum of £90,000 to the Applicant and £95,000 into court, to be held to the order of the court; or
(b) makes provision for security in the sum of £185,000 by another method agreed with the Applicant's legal representatives."
The order further provides by paragraph 14:
"14. Anyone served with or notified of this order may apply to the court at any time to vary or discharge this order (or so much of it as affects that person) ..."
The order accordingly makes clear to the petitioner how he may bring the order to an end, or apply for its variation or discharge. He has done neither.
[17] On 17 February 2004 the first respondents' solicitors wrote to the petitioner's solicitor pointing out that the petitioner had failed to provide them with the information specified in paragraph 10 of the order. They asked the solicitor to provide them in writing with (1) the name of the lender that had agreed to re-mortgage the petitioner's property, (2) the amount of the offer of loan and (3) the amount owed to the petitioner's current lender (no 7/17 of process). Counsel took me through the subsequent correspondence (nos. 7/18, 7/19, 7/21, 7/22, 7/23 and 7/25 of process). Suffice it to say that no progress was made. In their fax of 2 April 2004 to the petitioner's solicitor (no 7/25 of process), the first respondents' solicitors made it clear that if the petitioner intended to proceed with the re-mortgaging of his property and provided satisfactory information in response to the request made on 17 February 2004, the first respondents would consider consenting to an application by the petitioner for a variation of the freezing order. [18] It is therefore clear that the petitioner would not have been embarrassed by the freezing order if he had fulfilled the obligations which he undertook when he consented to the original interim costs order, or if he had satisfied either of the conditions prescribed by paragraph 12(3) of the freezing order, or if he had taken advantage of the opportunity offered by the first respondents' solicitors in their fax of 2 April 2004. [19] Senior counsel for the second respondent advised me that, as far as the permanent trustee had been able to ascertain, the petitioner's assets were insufficient to pay his various creditors in full. For that reason, counsel submitted, the sequestration should continue. [20] The petitioner, when addressing me in response to the submissions of the respondents' counsel, complained of "inequality of arms" on the ground that he was appearing on his own behalf against senior counsel. He was, however, a confident speaker. Counsel had set out the issues with clarity, and I expressly invited him to reply to counsel's submissions. He declined to do so, saying, "Counsel's arguments are a wee bit over my head." Thus he did not attempt to counter the submissions of both senior counsel on relevancy. He also complained that he had not expected "this avalanche of material", that is, the respondents' productions to which I have referred. These consisted, however, of copies of various orders of the High Court in the English litigation with which, as a party litigant, he ought to have been perfectly familiar, and a file containing some seven letters or faxes passing between his own and the first respondents' Edinburgh solicitors. The latter file also includes a letter from the petitioner to the first respondents' English solicitors (no 7/22 of process) from which it is apparent that the petitioner was well aware of the attempts of the first respondents' Edinburgh solicitors to make progress in the matter. I allowed him to hand up written submissions and supply copies to counsel. I also heard everything that he wished to say. He was assisted by an adviser of his own choice who sat behind him in court. He did not request or suggest any further steps that might be taken to assist him as a party litigant. In these circumstances I consider that he was not unfairly prejudiced by appearing on his own behalf. [21] The petitioner's argument on the merits was that the first respondents had wrongfully obtained his sequestration through various abuses of process. Their object, he said, was to destroy him financially and to secure his patents "for a pittance of their true value". He appeared to be primarily concerned to support the averments in article 4 of the petition. He maintained, but did not demonstrate, that he was not an insolvent person. He addressed me at length on the English proceedings and on other proceedings in the United States of America. He considered the freezing order to be unlawful, and placed great emphasis on the case now pending before Lord McEwan, urging me to adjourn the hearing on the petition and answers until Lord McEwan's opinion was available. Finally he submitted that the Bankruptcy (Scotland) Act 1985 was inconsistent with article 6 of the European Convention on Human Rights. [22] In my opinion none of these considerations tends to show that there are any circumstances indicating that it would be appropriate to recall the award of sequestration. I have already discussed the averments in article 4 of the petition. I heard argument from senior counsel for the second respondent on the degree of certainty that would be required before the Court could be "satisfied" in terms of section 17(1). That matter was discussed in Grantly Developments. Since in the present case there is in my opinion no material upon which it would be possible to exercise the discretion conferred by the section, it is unnecessary for me to reach a view on this question.4. Result
[23] I shall therefore dispose of the petition by sustaining the respondents' pleas on the merits, that is, the second plea-in-law for the first respondents and the second, third and fourth pleas-in-law for the second respondent, and refusing the prayer of the petition.