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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Accountant In Bankruptcy As Trustee On The Sequestrated Estates Of Brown v Brown [2007] ScotCS CSOH_133 (27 July 2007)
URL: http://www.bailii.org/scot/cases/ScotCS/2007/CSOH_133.html
Cite as: [2007] ScotCS CSOH_133, 2007 GWD 25-425, [2007] CSOH 133
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OUTER HOUSE, COURT OF SESSION

 

[2007] CSOH 133

 

A488/05

 

 

 

 

 

 

 

 

 

 

 

 

OPINION OF LORD MACKAY OF DRUMADOON

 

in the cause

 

ACCOUNTANT IN BANKRUPTCY as Trustee on the Sequestrated estates of GEORGE BROWN

 

Pursuer;

 

against

 

WINIFRED MARGARET BROWN

 

Defender:

 

 

ннннннннннннннннн________________

 

 

 

Pursuer: Duthie; Balfour & Manson

Defender: Duthie; Semple Fraser

Minuter: In person

 

27 July 2007

 

Introduction

[1] This action has been raised by the Accountant in Bankruptcy, in his capacity as trustee on the sequestrated estates of George Brown ("the debtor"). On 31 October 2003, the pursuer was appointed the permanent trustee on the estates of the debtor by interlocutor of the Sheriff at Cupar. The petitioning creditor in the proceedings which gave rise to the pursuer's appointment was Stuart Wilkie ("the minuter"), who has lodged a minute of sist in these proceedings. In terms of that minute he seeks to be sisted as an additional pursuer in the action. The defender in the action is Winifred Margaret Brown, who is the spouse of the debtor, George Brown.

[2] The action was raised by summons signetted on 28 July 2005, a few months short of the second anniversary of the pursuer's appointment. In the summons, the pursuer seeks production and reduction of a disposition of heritable property at 10 West End, St Monans, Fife ("the subjects"). The subjects are a dwellinghouse. That dwellinghouse has been, since it was first acquired by the debtor and the defender, their family home.

[3] The pursuer founds on the provisions of section 34 of the Bankruptcy (Scotland) Act 1985 ("the 1985 Act"), the contention being that the disposition was a gratuitous alienation of the debtor's property. The disposition was granted by the debtor and the defender in favour of the defender alone. It is dated 25 February 2001 and was recorded in the General Register of Sasines on 6 March 2001. There is a further conclusion in the summons seeking the expenses of the action.

[4] On 8 December 2005 Lord Glennie granted decree in absence in favour of the pursuer. That decree was recalled by interlocutor of Lord Macphail dated 16 December 2005. The open record was lodged late on 18 January 2006. The action was then sisted, on 23 February 2006, on the unopposed motion of the defender. On 12 December 2006, having heard parties on an opposed motion on behalf of the pursuer, the court recalled the sist and further continued adjustment of the open record until 22 February 2007. On each of 22 February 2007 and 23 March 2007 a further four week continuation of the adjustment of the open record was granted. Both continuations were granted of consent of the pursuer and the defender.

[5] On 23 April 2007 the minuter, Stuart Wilkie, personally attended at the General Department. He lodged his minute of sist and enrolled a motion in the following terms:-

" To lodge a minute of sist to allow the petitioning creditor to become a named party and pursuer in the action.

To dispense with timeous intimation, as both other parties are fully aware who petitioning creditor is and interest in the case.

To allow petitioning creditor access to court action and continue in the process."

Whilst the minuter was present in the General Department intimation of his motion was faxed to the firms of solicitors acting for the pursuer and the defender.

[6] On 24 April 2007 the pursuer's solicitors intimated opposition to the minuter's motion and lodged the appropriate form with the General Department. On the same day the defender's solicitors lodged a joint minute (number 13 of process) and enrolled a motion that the joint minute be received and that authority should be interponed thereto. That joint minute was signed by counsel for each of the pursuer and the defender. The joint minute stated that the action had settled extra judicially and that the parties moved the Court to assoilzie the defender from the conclusions of the summons and to find no expenses due to or by either party.

[7] When the action first came before me on 25 April 2007 a copy of the open record, as adjusted on behalf of the pursuer, was available. On that occasion the minuter was personally present. The pursuer was represented by Mr Duthie, Advocate, who at that stage appeared only on the instructions of the pursuer's solicitors, Burness LLP.

[8] During the course of the submissions I heard on 25 April 2007 it became apparent that the minuter had not been allowed access to the court process. For that reason, and also to give the minuter further time to prepare his submissions and the documents which he wished to place before the court, I continued the hearing until the following day. In the course of doing so I indicated that the adjournment would give the defender the opportunity to consider whether or not she wished to be represented at the hearings of the two motions that were before the Court.

Three preliminary matters

[9] On 26 April 2007, the minuter and Mr Duthie again appeared. On this occasion Mr Duthie was instructed by Burness LLP, on behalf of the pursuer, and also by Semple Fraser, on behalf of the defender. On 26 April 2007 before turning to his submissions on the substance of his motion that he be sisted as a party to the action, the minuter raised three preliminary matters on which he sought orders from the Court.

[10] The first of the orders he sought was to the effect that I, as a Lord Ordinary sitting in the Outer House, had no locus to deal with the merits of his principal motion, because that motion involved "issues" which were the subject of dispute in other proceedings that were currently before the Inner House. Those other proceedings were an appeal to the Court of Session at the instance of the minuter against the decision of the Sheriff at Cupar dated 31 August 2006 to refuse the minuter's application under section 54(3) of the 1985 Act to have the discharge of the debtor's sequestration deferred. The debtor was the respondent in that appeal. Having heard the minuter's submissions in respect of that motion, during which he sought to found on the terms of annotations 38.8.3 and 38.8.3 to the Rules of Court, and Mr Duthie in reply, I refused the motion. I did so for the simple reason that the minuter's appeal to the Court of Session in his application under section 54(3) of the 1985 Act was an entirely separate process to the present action. In the appeal by the minuter, which was before the Inner House, the debtor was the only other party. In the present action, the debtor is not a party but both the pursuer and the defender are.

[11] In the event, whilst I had this matter at avizandum, the Inner House dismissed the minuter's appeal against the decision of the Sheriff at Cupar. They did so by interlocutor dated 7 June 2007 and refused leave to appeal to the House of Lords by interlocutor dated 21 June 2007.

[12] The second preliminary motion which the minuter advanced was that I should order that the defender in the present action could not be represented by Mr Duthie during the hearing of his motion. That was because Mr Duthie was also representing the pursuer, in his capacity as the trustee on the sequestrated estates of the debtor. It was submitted that by accepting instructions to act for both the pursuer and the defender, Mr Duthie had placed himself in a situation involving a "conflict of interests". Having heard the minuter's submissions on that matter and Mr Duthie's reply, I refused to make such an order. Standing the nature of the principal motion which the minuter intended to advance, namely that he be sisted as a party to the present action, and the fact that both the pursuer and the defender wished to oppose that motion, I saw no reason why I should pronounce an order that prevented Mr Duthie from appearing for both of the existing parties when I dealt with the minuter's motion. Whilst it is conceivable that different considerations might apply at a later stage of these proceedings, for the purposes hearing the minuter's principal motion, I saw no basis on which it would have been appropriate for the Court to pronounce the order the minuter sought.

[13] The third preliminary matter raised by the minuter involved a quite separate issue. I was invited to rule that it was not competent for the defender to advance any arguments opposing the motion that he be sisted as a party to the action, because the defender had not complied with the procedures laid down in the Rules of Court for opposing that motion. In particular, the minuter sought to found on the defender's failure to lodge with the General Department written notification of her opposition to his motion or to give written notice of the grounds of that opposition. What had happened was that his motion had been enrolled on 23 April, had been opposed on behalf of the pursuer on 24 April, and had come before the Court for the first time on 25 April, without the defender have given any written notice to the Court or to him. The minuter founded on the provisions of Rules of Court 23.4 (3), (4) and (5).

[14] Having heard the minuter's submissions on that preliminary motion and Mr Duthie in reply I refused the motion. In doing so, under reference to the provisions of Rule of Court 2.1, I granted the defender relief from her failure to comply with the appropriate provisions of Rule of Court 23. I considered that failure to be excusable having regard to the fact that the minuter had not himself given the parties the appropriate intimation of his motion, in terms of the Rules of Court, prior to enrolling that motion on 23 April 2007. When I refused this particular motion, I indicated that I would allow Mr Duthie to proceed in the manner he proposed, namely to represent the interests of both the pursuer and the defender at the hearing before me on the substance of the minuter's motion that he be sisted as a party.

[15] When I announced my ruling on this third preliminary motion, the minuter immediately intimated that he wished to seek leave to reclaim against my decision on that matter. I accordingly heard the minuter's submissions on the application for leave to reclaim and Mr Duthie in reply. I refused to grant the minuter's motion for leave to reclaim. I took the view that my decision to make the order the minuter had sought had fallen squarely within my discretion. In any event, it was, in my opinion, in the interests of all parties that I should proceed to hear submissions upon and to determine the minuter's principal motion.

Submissions by minuter

[16] Turning to the merits of the minuter's principal motion, the minuter's position can be summarised as follows. The pursuer had been appointed as permanent trustee on the sequestrated estates of the debtor. The disposition under challenge had been a gratuitous alienation. By delaying to raise an action seeking reduction of the disposition, and in particular, by reason of his conduct of and willingness to compromise the present action on the basis of a payment of г70,000 by the defender, the pursuer had not acted in the best interests of the unsecured creditors on the debtor's estate, who included himself and his father, who was due approximately г33,000. Whilst the minuter acknowledged that it is competent for a debtor to buy back assets out of his sequestrated estates, at market value, he argued that the pursuer, in reaching his decision to compromise the present action on the basis of a payment of г70,000, had erred in law and had, in any event, decided upon an inappropriate figure, which bore no proper relation to the current market value of the one half share of the subjects which the debtor had conveyed to the defender by means of a gratuitous alienation. In developing these submissions, the minuter took me through the background to the debtor's sequestration, the history of that sequestration and the history of the present action.

[17] As far as the background to the sequestration is concerned, I was referred the Opinion of the Court dated 30 May 2003, in which the Inner House had allowed the minuter's appeal against the interlocutor of the Sheriff at Fort William, dated 28 October 1994, in an action for damages the minuter had raised against the debtor. In terms of his interlocutor, the sheriff had assoilzied the debtor. The Inner House recalled that decree of absolvitor and granted decree in the minuter's favour for a principal sum of г83,072.31. It was subsequently determined that the judicial interest payable in respect of the principal sum should run from 1997. The minuter was also found entitled to the expenses of the action. The decree pronounced by the Inner House in the defender's favour was never satisfied by the debtor and had given rise to the debtor's sequestration in which the minuter had been the petitioning creditor. The minuter explained that he was due somewhere in the region of г170,000 from the debtor's estates.

[18] As far as the history of events since the date of sequestration was concerned, the minuter took me through certain items of correspondence between himself and the pursuer, which he had lodged in process. These included letters which he had sent to the pursuer dated 18 April 2005, 21 March 2006, 6 May 2006, 30 May 2006, 13 June 2006, 30 December 2006, 19 March 2007 and 23 April 2007. He also referred to letters, which he had received from the pursuer, dated 4 December 2006, 14 March 2007 and 18 April 2007. The minuter submitted that correspondence demonstrated that following the minuter raising the action he had moderated his stance as to the basis upon which he was prepared to settle the action with the defender. That had culminated in the pursuer intimating to the minuter, in his letter of 18 April 2007, that he had agreed to settle the action on payment of г70,000, without any provision for expenses. That was a lower figure than the pursuer had previously been seeking.

[19] The minuter argued that on the basis of the approach to settlement, which the pursuer had taken, in his capacity as trustee on the estates of the defender, it was possible that he would receive nothing by way of a dividend from the debtor's estates. It was clear that, out of the payment of г70,000, the pursuer would require to pay his own legal expenses in connection with the action. These amounted to a sum in excess of г33,000. It was also clear from the letter of 18 April 2007 that in addition the pursuer would have to meet other fees and outlays of the sequestration from the payment of г70,000.

[20] The minuter also argued that the pursuer had erred in law in his approach to the prosecution of the action he had raised, and during his negotiations with the defender. He had done so by considering that he was bound to allow the defender credit (a) for the costs she had incurred in settling a one-half share of the mortgage over the subjects, which had been due by the debtor, and (b) for one-half of the increase in value of the subjects that was said to be attributable to the costs she had incurred on alteration, upgrading and refurbishment works to the subjects, which she authorised and undertaken since March 2001. Furthermore, the figure of г70,000 at which the pursuer had agreed to settle with the defender had reflected a further element of discount, in favour of the defender, from a one half share of the current market value of the subjects. Moreover the agreement to settle had not included any provision that the defender meet any part of the pursuer's expenses in the present action.

[21] The minuter argued that he had title and interest to seek reduction of the disposition, in terms of section 34(1) of the Bankruptcy (Scotland) Act 1985, and that, having regard to the manner in which the pursuer had pursued and sought to compromise the present action, the Court should exercise its discretion in his favour and allow him to be sisted as a pursuer to the action. The minuter submitted that whilst it might still be competent for him to raise his own action, if such an action required to follow an interlocutor in the present action, interponing authority to the joint minute and dismissing the action, that further action would be a much more complicated procedure for him to embark upon than would be the position were he to be sisted as an additional pursuer in the present action.

Submissions on behalf of pursuer and defender

[22] The minuter's motion was opposed on behalf of the pursuer and the defender. Counsel explained that, following upon an extra-judicial settlement being reached between the pursuer and the defender, the joint minute had been signed by counsel for both parties and a cheque in settlement had been sent by the defender's solicitors to the pursuer's solicitors. I was informed that the cheque would not be cashed pending my ruling on the minuter's principal motion.

[23] It was argued that it would not be competent for the Court to allow the minuter to be sisted as an additional pursuer to the present action. There were no statutory provisions allowing the minuter to be sisted as an additional pursuer to the present action, which the pursuer had raised in terms of section 34 of the 1985 Act. If the minuter wished to challenge the pursuer's conduct in relation to the disposition it was open to him to raise proceedings for judicial review of the pursuer's decision to compromise the present action. Such proceedings might well be necessary because once the Court had interponed authority to the decree entered into by the pursuer and the defender, the Court's decree would be res judicata on the issue of whether the disposition could be reduced at the instance of the minuter on the basis that it had been a gratuitous alienation. In any event, the provisions of section 65(1) of the 1985 Act prevented the minuter from now embarking on proceedings to reduce the disposition. If the minuter was dissatisfied with the pursuer's decision to settle the action with the defender, the minuter could have recourse to the provisions of section 7 of the 1985 Act and apply to the sheriff. In terms of section 7 the Sheriff would have power to confirm, annul or modify the decision that the pursuer had taken to settle the present action.

[24] It was also contended on behalf of the pursuer and the defender that there was a further reason why it was not appropriate to allow the minuter to be sisted as a party to the present action. It was argued that it was clear from the correspondence the minuter had lodged that he wished to ventilate grievances about the pursuer's conduct of his duties as trustee on the estates of the debtor, which were unrelated to the disposition or the issues that had arisen in the present action.

[25] Mr Duthie argued that it had been open to the pursuer to enter into the settlement agreement he had. That settlement had taken into account all the information before the pursuer, including the value of the subjects, the increase in the value of the subjects attributable to the alterations, upgrading and refurbishment works carried out to the subjects since March 2001 and the mortgage repaid by the defender following on the debtor's sequestration. Regard has also been paid to the risks faced by the pursuer in the present action and in any subsequent action of division and sale, to the issue of irrecoverable judicial expenses and other costs associated with any sale of the subjects and to the legal advice that the pursuer had received. It was argued that against that background it had been open to the pursuer to reach the decision to settle the action on the basis of a payment by the defender of a lump sum г70,000, without any further sum being payable by the defender by way of an award in respect of the expenses. Under reference to Short's Trustee v Chung 1991 S.L.T. 472 it was argued that the purpose of section 34 of the 1985 Act was to allow the bankrupt's estate to be restored to the situation it would have been in had the gratuitous alienation not taken place. The statutory provisions were not intended to provide the bankrupt's estate with a windfall. In the event that reduction of the disposition was to be granted, the defender would have the right to be repaid in full out of the estates of the debtor the one-half share of the mortgage due by the debtor, which the defender had settled on his behalf following his sequestration. Likewise, in the event that the disposition was to be reduced, the defender would be entitled to claim in full from the sequestrated estates of the debtor one half of the extent to which the subjects had increased in value, on account of the works that she had funded, between the date of the disposition and the date on which the disposition had been reduced. That had been the legal basis upon which the pursuer had been proceeding, when he had entered into a settlement with the defender.

[26] Mr Duthie accepted that following upon the sequestration of the debtor it would have been competent for the minuter to have raised his own action seeking reduction of the disposition in terms of section 34 of the 1985 Act. That could have been done by the minuter before the pursuer raised the present action. But Mr Duthie argued that it had ceased to be competent for the minuter raise such proceedings once the present action had been raised. Nor was it competent for a creditor, such as the minute, to be sisted as an additional pursuer to an action raised by a permanent trustee in terms of section 34 of the 1985 Act.

Discussion

[27] I have not found this an easy matter to decide. However, having considered all the submissions placed before me, I have reached the conclusion that I should grant the minuter's motion and allow him to be sisted as an additional pursuer in the action.

[28] In reaching that decision, I proceed on the basis that it remains competent for minuter to raise an action founding on the provisions of section 34 of the 1985 Act, even although the pursuer has already done so. In my opinion, there is nothing in the 1985 Act that would prevent the minuter from doing. Similarly, there is nothing in the Rules of Court, or in any authority to which I was referred, that supports the view that it would not have been competent for the minuter to be sisted as an additional party to the action, after it was raised by the pursuer. In my opinion, as a matter of competency, the position has not changed merely because the pursuer and the defender have entered into an agreement to compromise the present action. In my opinion, if the pursuer and the defender wish to argue that the joint minute they have entered into amounts to res judicata as against the minuter it would be more sensible, and less expensive, if that issue was to be addressed in the context of this action, rather than in separate proceedings. Precisely when that joint minute was signed may be unclear. However, the Court has not yet interponed authority to the joint minute and granted decree implementing its terms. Had it already done so, different considerations might have applied to the issue of whether it was still competent for the minuter to be sisted as a party to the action.

[29] Similarly if the pursuer and the defender intend to found on the provisions of section 65(1) of the 1985 Act, as preventing the minuter from seeking to exercise his rights under section 34 of the 1985 Act, it would be more sensible for that issue to be addressed and resolved in the present action. At this stage I restrict myself to be observing that it is arguable that if the minuter is seeking to exercise his rights under section 34 of the 1985 Act, he is not making a claim on behalf of the sequestrated estates of the debtor, as opposed to raising proceedings from which in due course the sequestrated estates, and ultimately the creditors on those estates, may benefit.

[30] For these reasons, I proceed on the basis that it would be competent for me to grant the motion to sist the minuter as an additional pursuer in the action. The question then comes to be whether I should exercise my discretion and allow him to do so. I have reached the conclusion that I should. In my opinion, it is arguable that the pursuer has erred in law on the extent of the defender's rights to receive reimbursement or compensation from the sequestrated estates of the debtor for funds she has expended in connection with the subjects since March 2001 and in respect of any part of the increase in value of the subjects that has taken place since March 2001. However, it may well be the case that any such errors in law on the part of the pursuer have no bearing on the nature of minuter's right to seek reduction of the disposition by founding on the provisions of section 34 of the 1985 Act. For that reason, in reaching my decision, I have left out of account the contention that the pursuer my have erred in law.

[31] However it is, in my opinion, perfectly arguable that if the minuter was in a position to move for decree of reduction in terms of the first conclusion of the summons the Court might well have evidence before it that would enable it to find in the minuter's favour. Furthermore, if decree of reduction of the disposition were to be granted there could well result in more assets being available to the pursuer, for distribution amongst the creditors of the debtor, than would be the case were the pursuer's motion to be refused. I also consider that matters would become more complicated for all the parties involved if the minuter was required to raise further proceedings, whether relying upon the provisions of section 34(1) of the 1985 Act and by means of an application to the sheriff in terms of section 3(7) of the same Act. Indeed, as far as the provisions of section 3(7) of the 1985 Act are concerned, the minuter's rights under that section appear to me to be of a very different nature to those which he is entitled to exercise by virtue of section 34(1). I have taken all these factors into account in reaching my decision to grant the motion

[32] Having regard to the decision I have reached to grant the minuter's motion, I will put the case out By Order to hear submissions in relation to the motion to interpone authority to the joint minute and to discuss further procedure.

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