Act : Party

Alt : Paterson; HM Milne, Solicitor for HM Revenue & Customs

29 June 2006

1.                  Background

[1] The history and nature of the reclaimer's litigations with the respondent and others have been set out at length by the Court on a number of occasions. That history goes back to 1986 and 1988 when the Lord Advocate, for and on behalf of the Commissioners for Inland Revenue, raised two separate Exchequer causes against a firm called Grampian Medical and Industrial (Wholesale) Supplies and its partners, including the reclaimer, for sums totalling in excess of £175,000 plus interest and expenses. The actions were not defended, albeit that, for some time now, the reclaimer's position has been that the sums were not due by her because the firm had become incorporated. Decrees in absence followed. In January 1989, the Lord Advocate, in the same capacity, presented a petition for the sequestration of the reclaimer's estate based on the sums in the decrees. An award of sequestration was granted by the Lord Ordinary on 9 March 1989. In August 1991, the reclaimer presented a petition, craving suspension of the sequestration and interdict preventing further proceedings based upon it, pending the resolution of an action of reduction, which she intended to pursue. The petition was initially raised only against the permanent trustee on her sequestrated estate. However, orders for service were also sought for both the Lord Advocate, for and on behalf of the Commissioners for Inland Revenue, and the Accountant in Bankruptcy. The reclaimer obtained interim orders on 20 August 1991. On 14 October 1998, the First Division adhered to the Lord Ordinary's interlocutor of 14 November 1997 dismissing the action of reduction (Sutherland v Inland Revenue Commissioners 1999 SC 104). The prayer of the petition was refused by the Lord Ordinary, but only on 5 June 2003 (Sutherland v Campbell 2003 SLT 1138). At the hearing before the Lord Ordinary, both the permanent trustee and the present respondent were represented. A reclaiming motion against the Lord Ordinary's interlocutor was refused on 17 December 2003. All of this procedure left the reclaimer's sequestration of 1989 intact. It also left the reclaimer with a significant account of expenses to pay, notably £11,468.43 due to each respondent in the petition process. Decree for this was extracted on 22 March 2005. The extract bears to relate to the petition of the reclaimer against each of the Lord Advocate, the permanent trustee and the Accountant in Bankruptcy as respondents. It states that:

[2] A charge was served on the reclaimer in respect of the decree on 19 April 2005. The charge craved payment to the Inland Revenue. The sum was not paid. On 19 May, the respondent lodged a petition for the reclaimer's sequestration. The petition, which refers in its schedule to the extract decree, the charge and the relative oath, was duly served on the reclaimer. She appeared before the Lord Ordinary on 30 June to oppose the grant of sequestration. Her opposition was unsuccessful and an award of sequestration was made. Undaunted by this setback, the reclaimer presented a petition for the recall of the new sequestration under sections 15 to 17 of the Bankruptcy (Scotland) Act 1985 (c 66). The petition hit a procedural snag when, on 24 August 2005, the Lord Ordinary refused to grant a first order for service on the basis that the petition lacked merit. However, this was not an appropriate approach procedurally (see infra) and the interlocutor was recalled upon a reclaiming motion. A first order was granted in the Inner House on 27 September 2005. The Inner House did not address the merits of the petition. At the stage of adjustment, the reclaimer extended the remedies originally craved by seeking, amongst other things, recall of the 1989 sequestration and by craving substantial damages.

[3] In due course, the petition and answers came before the Lord Ordinary. On 27 January 2006, he issued an Opinion stating that he would sustain the respondent's pleas-in-law and refuse the prayer of the petition. However, the interlocutor signed on that date sustains only the third plea-in-law and dismisses the petition. The Lord Ordinary considered that the new remedies could not be sought in the petition. This was, in essence, because, first, the attempt to recall the 1989 sequestration was outwith the ten week time limit stipulated in section 16(4) of the 1985 Act for a petition craving recall on the grounds stated. Second, that attempt was also barred by the plea of res judicata, having regard to the previous disposals of the action of reduction and the petition for suspension and interdict. Third, and in any event, the Lord Ordinary regarded the petition as an "abuse of process" in so far as it related to the 1989 sequestration. Fourth, the claim of damages was not a remedy which could be sought in a petition for recall. Fifth, and again in any event, the reclaimer had not set out a relevant claim for damages. In relation to the 2005 sequestration, the Lord Ordinary rejected the reclaimer's primary contention that the respondent (that is to say the Advocate General for and on behalf of the Commissioners for Her Majesty's Revenue and Customs) was not a qualified creditor in terms of the 1985 Act because the extract decree was in favour of the Lord Advocate and others. He did so having regard to article 6 of the Scotland Act 1998 (General Transitory, Transitional and Savings Provisions) Order 1999 (SI 901) and section 48(1) of the Commissioners for Revenue and Customs Act 2005 (c 11).

[4] The reclaimer's submissions at the bar followed the detailed amended grounds of appeal which she had lodged. Without repeating all of that detail, the contentions were that the Lord Ordinary had erred in a number of respects. First, he had erred in being satisfied that the petition for sequestration had been in accordance with the 1985 Act. This repeated the principal point raised before the Lord Ordinary concerning the respondent pursuing a sequestration based upon an extract decree in favour of the Lord Advocate and others. Second, he had failed to have regard to section 17(2) of the 1985 Act, which permitted the Court to recall an award of sequestration even if it was not the one sought to be recalled in the petition. Third, he had erred in his willingness to sustain the res judicata plea. The action of reduction had only been dismissed. No decree of absolvitor had been granted. The parties to the petition for suspension and interdict had not been the same as in the present petition. The subject matter of the present petition was not the same as in the earlier petition and action. Fourth, he had failed in considering the petition to be an abuse of process. Fifth, he had erred in holding that damages could not be sought in the petition. An analogy between the present petition and judicial review petitions was drawn and reference made to Attorney General's Reference (No 2 of 2001), sub nom R v J (Unreasonable Delay) [2003] UKHL 68; [2004] 2 AC 72 (Lord Rodger of Earlsferry at para 175). In any event, in terms of sections 7 to 11 of the Human Rights Act 1998 (c 42) the Court was entitled to make an award of damages in appeal proceedings. Sixth, he had erred in stating in his Opinion that he was going to sustain all of the respondent's pleas-in-law but then only sustaining one in the interlocutor dismissing the petition. Seventh, and perhaps repeating the first ground, he had erred in considering that the respondent was entitled to pursue a petition based on a debt due to the Lord Advocate and others. Eighth, again perhaps as repetition, he had erred in relation to the reclaimer's liability to pay the respondent rather than the Lord Advocate. Ninth, he had erred in not noticing that the extract was ambiguous; there had been a defect in procedure because the creditor's oath, extract decree and execution of charge had not been served with the petition; and there had already been a sequestration in 1989. Tenth, he had failed to notice that the merits of the petition had been dealt with by the Inner House on 27 September 2005.

[5] The respondent placed the grounds of appeal into three categories. First, there were those directed against the Lord Ordinary's refusal to recall the 2005 sequestration (first, second, sixth to tenth). In that regard, there was no dispute that the reclaimer had received the charge for payment. The petition had been duly served on the reclaimer and the schedule of documents attached to it included reference to the oath, extract decree and execution of charge. There was a requirement to lodge these documents (Rule of Court 27.1) but not to serve them, as distinct from an inventory specifying their nature, on the parties referred to in the schedule for service (Rule of Court 4.5). The schedule of documents operated as an inventory in these circumstances. The decree which had been extracted stood unreduced. It related to the unsuccessful petition for suspension and interdict which had been directed against the Lord Advocate for and on behalf of the Commissioners for Inland Revenue. The Lord Ordinary had set out the legislation vesting the functions of the Inland Revenue in the Advocate General and dealing with the amalgamation of the Inland Revenue with the Customs and Excise. There was no merit in the grounds of appeal covering this point. The Inner House, in its interlocutor of 27 September 2005, had only cured a procedural defect and had not dealt with the merits of the petition. There had been no other defect in the process. The fact that there had been an earlier sequestration did not preclude a subsequent one. There was automatic discharge after the statutory period, but there can be a further sequestration for new debt. The second category of grounds covered those challenging the refusal to recall the 1989 sequestration. The legislation was clear. Section 15(4) of the 1985 Act provided that an award of sequestration could only be reviewed by way of reduction or by a petition for recall under sections 16 and 17. Such a petition could only be presented within ten weeks of the award unless it was based upon certain specific grounds, notably payment of the debt (section 17(1)(a)). These grounds were not averred in the petition and it was therefore incompetent in so far as relating to the 1989 award. The matters in the petition relating to that award were also res judicata. Reference was made to Waydale v DHL Holdings (UK) 2000 SC 172. Finally there was the third category of miscellaneous grounds. These included the contentions in relation to damages. The Lord Ordinary had been correct in determining that these could not be sought in a petition for recall of sequestration. They would require to be sought in a separate action for wrongful sequestration and diligence. The reclaimer had referred to breaches of her human rights but the petition failed, in any event, to identify which rights had been violated. It could not be deprivation of possessions. The 1989 sequestration had related to non payment of taxes and these were excluded from the protection given in article 1 of the First Protocol. It had also occurred long before the 1998 Act came into force. The 2005 sequestration was in relation to non payment of legal expenses and the collection of such expenses was not prohibited under the article (Antoniades v UK (1990) 64 DR 232 at 236). The complaint could not be in relation to a fair hearing under article 6 of the Convention as the reclaimer had been afforded many of these.

3.                  Decision

[6] The 2005 sequestration proceeded upon the petition of the respondent for and on behalf of the Commissioners for Her Majesty's Revenue and Customs. The Commissioners are appointed under and in terms of the Commissioners for Revenue and Customs Act 2005 (supra). They act on behalf of the Crown (section 1(4)). As the Lord Ordinary correctly records, in terms of section 48(1) of the Act, these Commissioners acquired the rights of the old Commissioners for Inland Revenue. Any debt formerly due to the old Commissioners was thereafter due to the new Commissioners by operation of statute.

[7] Article 6 of the Scotland Act 1998 (General, Transitory and Savings Provisions) Order 1999 (supra) provides that any interest of the Lord Advocate in civil proceedings then pending, other than any interest derived from his position as prosecutor, transferred to, and became exercisable by, the Advocate General. The petition process in which the expenses were awarded was then pending. Again by operation of statute, the Lord Advocate's interest then vested in the Advocate General, hence the appearance on behalf of the Advocate General, but not the Lord Advocate, at the hearing on the petition and answers on 25 April 2003. The extract decree for expenses refers to the Lord Advocate in the instance as the party to the action. That is because, as distinct from what occurred in the reduction action, the instance of the petition remained unamended at the hands of the reclaimer and there was no formal entrance into the process by the respondent in terms of a minute or otherwise. The respondent simply took up the reins of the Lord Advocate after the coming into force of the 1999 Order since it was the respondent who was then the Government minister entitled to pursue and defend matters in the courts in respect of rights and obligations formerly vested in the old Commissioners.

[8] What is important to observe is that neither the appearance of the Lord Advocate nor that of the Advocate General was on a personal basis. In each case it was for and on behalf of the Commissioners for Inland Revenue. That is made clear in the Lord Ordinary's interlocutors of 25 April and 5 June 2003. The extract decree does refer simply to the Lord Advocate. It does not specifically state that he was in that process for and on behalf of the Commissioners. There was no need for it to do so. It was the reclaimer herself who expressly introduced the Lord Advocate into the process in that capacity. She could have been in no doubt that any decree in his favour, including one for an amount of expenses, would also be in that capacity. The debt evidenced by the extract decree was one due to the Commissioners. It was the Commissioners who became qualified creditors of the reclaimer. It was they who, therefore, caused the charge to be served by messengers-at-arms demanding payment to the Inland Revenue; that step not requiring the intervention of a law officer. When it came to further court action, the practice of the court requires that any petition be at the instance of the appropriate Government minister. Because of the timing of the petition for sequestration relative to the 2005 Act, it could only be raised on behalf of the Commissioners' successors under the 2005 Act. Furthermore, by this time it could only be at the instance of the Government minister in whose name such proceedings customarily run. Since revenue matters are reserved under the Scotland Act 1998, that officer had to be one from the United Kingdom Government and not the Scottish Executive, of which the Lord Advocate was by then a member. The appropriate minister was the Advocate General.

[9] It follows from all of this that the terms of the Bankruptcy (Scotland) Act 1985 (supra) were complied with. There was a qualified creditor in terms of section 5(2)(b) and (4), namely the Commissioners for Her Majesty's Revenue and Customs as successors of the Commissioners for Inland Revenue. The reclaimer was apparently insolvent; the days of the charge having expired under section 7(1)(c)(ii). The petition for sequestration was correctly raised by the respondent, again purely in a representative capacity. Accordingly the reclaimer's contentions in her first, seventh and eighth grounds of appeal are rejected.

[10] The extract decree is not ambiguous. It makes it clear that the sum stated is to be paid to each of the respondents in that process. There was no procedural defect relative to the lodging and intimation of the oath, decree or charge since there was no requirement for these to be served on the reclaimer. The fact that there had been an earlier sequestration of the petitioner does not render the subsequent petition incompetent. It follows that the reclaimer's ninth ground must fail.

[11] The Inner House's interlocutor of 27 September 2005 simply granted a first order for service of the petition. It recalled the Lord Ordinary's interlocutor, not because a different view had been taken of the merits of the petition, but because it had not been competent for the Lord Ordinary to refuse a first order because the petition lacked merit. As a general rule, if a petition (other than one for judicial review) is in proper form and validly signed, a first order has to be granted (Rule of Court 14.5(1)). It was in such form and validly signed, since the reclaimer was entitled to sign her own petition for recall of sequestration without the need for any authority from the Court (Rule of Court 4.2(3)(a)). The Inner House expressed no view on the merits. The reclaimer's tenth ground of appeal must therefore also fail.

[12] The reclaimer sought to recall the 1989 sequestration in a petition lodged on 22 August 2005. A petition for recall of sequestration is a distinct statutory process. It is the only method of reviewing an award, short of an action of reduction (1985 Act section 15(4)). It is constrained by the terms of sections 16 and 17. Section 16(4) provides that it must be presented within ten weeks of the award unless it proceeds under one of the grounds mentioned in section 17(1). This petition does not proceed on any of these grounds. It is therefore outwith the time limit specified by the statute and accordingly incompetent in so far as it relates to the 1989 sequestration. The terms of section 17(2), which give the court power to recall an award of sequestration not the subject of a petition, do not apply here since the 1989 sequestration is the subject of this petition. These terms also do not effect the time limit for presentation of a petition under section 16(4). The Lord Ordinary's reasoning on this ground is sound and the reclaimer's second ground of appeal must be rejected.

[13] The Lord Ordinary considered that, because of the previous action of reduction and the petition for suspension and interdict, the attempt to recall the sequestration must fail as being res judicata. However, the action of reduction resulted only in a decree of dismissal. For the reasons set out in Waydale v DHL Holdings (UK), (supra) such a decree cannot normally found a plea of res judicata. In this respect the Lord Ordinary has erred. In relation to the petition for suspension and interdict, the Lord Ordinary refused the prayer of the petition and such a refusal may found a plea of res judicata. However, the petition for suspension and interdict was simply an adjunct to the action of reduction. The remedies sought in it were, to a substantial extent, different from those in this petition for recall. Once again, therefore, it is difficult to see the basis for a successful plea of res judicata in these circumstances. For similar reasons, it is doubtful whether, even if the court has the power to dismiss an action as an "abuse of process" (cf Clarke v Fennoscandia (No. 3) 2005 SLT 511, Lord Justice-Clerk (Gill) at paras 17 and 18), this would have been an appropriate case in which to exercise any such power. The reclaimer's third and fourth grounds of appeal do therefore have some merit, but because of the decisions reached on the other aspects of the reclaiming motion, this cannot effect the outcome of the case.

[14] As observed above, a petition for recall is a distinct statutory process. That does not necessarily prevent a litigant combining other remedies with it. However, a petition process is not normally the appropriate form of action in which to seek damages. Where such damages are sought against a party in respect of a wrong committed by that party, the normal procedure is by ordinary action. This stems from the distinction between actions, which, in broad terms, are intended to vindicate rights, and petitions, which are designed to enable the litigant to secure an order from the court where no right exists. The introduction of the process of judicial review by petition is a hybrid and, no doubt because of the traditional distinction, it was thought necessary to provide specifically for an award of damages in a judicial review process (Rule of Court 58.4.(b)). That is an exception to the general rule, devised perhaps because it was anticipated that any award of damages in such a petition would flow from whatever defective action was being reviewed. This is not a petition for judicial review. It is one seeking recall of sequestration under statutory provisions. The prayer for slightly less than fifty million pounds is based on a series of averments both at common law and under the European Convention on Fundamental Rights and Freedoms. The former are, in essence, a claim for damages in respect of wrongful diligence and sequestration along with, quite separately, malicious prosecution. It is not competent to deal with such issues in a petition of this type. Furthermore, given the failure of the reclaimer's action of reduction before the Inner House, it is not possible to discern any relevant case for malicious use of diligence and sequestration or prosecution. The awards of sequestration stand as valid. On the human rights aspect of the case, it is difficult to understand just what particular articles of the Convention the reclaimer is alleging have been infringed. The reclaimer was sued for certain taxes owed by a firm of which she was, according to the Exchequer causes, a partner. These causes were not defended and the resultant decrees stand unreduced. Given their validity, the respondent and his predecessors were entitled to seek recovery of these taxes in terms of the exceptions contained in article 1 of the First Protocol. They were equally entitled to resist any legal challenges and to seek and to enforce any awards of expenses against an unsuccessful opponent. In all of these areas of dispute, the reclaimer has been afforded many fair hearings at which she has aired her concerns and grievances, albeit without ultimate success. For these reasons, and following those of the Lords Ordinary on this point in both this petition and in the petition for suspension and interdict, no relevant case for damages has been averred. The reclaimer's fifth ground of appeal must therefore be rejected.

[15] Finally, so far as the conflict between the final paragraph of the Lord Ordinary's Opinion and his interlocutor is concerned (the sixth ground of appeal), this is a matter which does require to be clarified. In light of the reasons given above, the result will be that the interlocutor of the Lord Ordinary dated 27 January 2006, sustaining the respondent's third plea-in-law, will be recalled. A new interlocutor will be pronounced which will: sustain the respondent's first and fifth pleas-in-law; repel the respondent's second plea-in-law; repel the reclaimer's first, third and fourth pleas-in-law; and refuse the prayer of the petition.