EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
|
Lord Nimmo Smith
Lord Drummond Young
Lord Penrose
|
[2009] CSIH 2
A488/05
OPINION OF THE COURT
delivered by
LORD DRUMMOND YOUNG
In the cause
ACCOUNTANT IN BANKRUPTCY
as Trustee on the sequestrated estates of GEORGE BROWN
1st Pursuer and
Reclaimer:
and
STUART WILKIE
2nd Pursuer and
Respondent:
against
WINIFRED MARGARET BROWN
Defender and Reclaimer:
_______
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Act: (1st Pursuer and
Reclaimer): Haddow, QC;
Burness LLP
Act: (2nd Pursuer and Respondent): Party
Alt: (Defender and Reclaimer): Dalgleish; Brodies LLP
15 January 2009
[1] On 31 October
2003 the Accountant in Bankruptcy was appointed permanent trustee on the
sequestrated estates of George Brown.
The defender is the wife of the debtor, George Brown. The minuter was the petitioning creditor in
the proceedings that led to the sequestration.
[2] The debtor
and the defender owned a house at 10 West End, St Monans, Fife, which was their family home. By disposition dated 25
February 2001
and recorded in the General Register of Sasines on 6 March
2001 the
debtor and the defender together disponed the subjects to the defender
alone. Following her appointment as
permanent trustee, the Accountant in Bankruptcy raised proceedings for
reduction of that disposition on the ground that it was a gratuitous alienation
of the debtor's property falling under the provisions of section 34 of the
Bankruptcy (Scotland) Act 1985.
[3] The summons
was signeted on 28 July 2005; decree in absence was granted on 8
December 2005,
but that decree was recalled on 16 December 2005.
Sundry procedure followed, including a sist from February to December
2006. On 23 April
2007 the
minuter lodged a minute of sist and enrolled a motion to the effect that he be
permitted to become a named party and pursuer in the action. Opposition to that motion was intimated on 24
April. On 24 April the defender's
solicitors lodged a joint minute that bore to settle the action (no 13 of
process) and enrolled a motion to have the joint minute received and authority
interponed thereto. The joint minute was
signed by counsel for each of the pursuer and the defender. It narrated that the action had been settled
extrajudicially 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.
Procedure before the
Lord Ordinary
[4] The minuter's motion first came before
the Lord Ordinary on 25 April 2007.
On that date the minuter appeared in person and the pursuer was
represented by counsel. The motion was
continued to the following day to enable the minuter to prepare his submissions
and to give the defender an opportunity to consider whether she wished to be
represented. At the continued hearing
both the pursuer and the defender were represented by the same counsel but
instructed through separate agents. The
Lord Ordinary dealt with three preliminary motions made by the minuter,
none of which is relevant to the present reclaiming motion, and then proceeded
to hear submissions upon and to determine the minuter's principal motion, to
have himself sisted as a party to the action.
The minuter submitted to the Lord Ordinary that the pursuer had not acted
in the best interests of the unsecured creditors on the debtor's estate, who
included himself and his father; the minuter was due approximately £170,000 as
a result of a decree pronounced by the Inner House in an action raised in Fort
William Sheriff Court, and his father was due approximately £33,000. The pursuer had delayed raising an action for
reduction of the disposition of 25 February 2001, and had indicated a willingness to
compromise the action on the basis of a payment of £70,000 by the defender; the
minuter had been informed of that decision by a letter dated 18
April 2007. The minuter submitted that that figure bore
no proper relation to the current market value of the one half share of the
subjects which had been conveyed by the debtor to the defender. In addition, although the pursuer had
succeeded in obtaining a payment from the defender, she was prepared to settle
the action on the basis that no expenses would be due to or by either party;
the pursuer's expenses amounted to a sum in excess of £33,000. The result was, the minuter submitted, that
it was possible that the unsecured creditors would receive nothing by way of
dividend in the sequestration. For the pursuer
and defender it was submitted to the Lord Ordinary that a judicial settlement
had been reached between the pursuer and the defender, and that a joint minute
had been signed by counsel for both parties and a cheque in settlement had been
sent by the defender's agents to the pursuer's agents. It was further submitted that it was not
competent for the court to allow the minuter to be sisted as an additional
pursuer in the present action. If the
minuter wished to challenge the pursuer's conduct it was open to him to raise
proceedings for judicial review of the pursuer's decision to settle the
action. Once the court interponed
authority to the joint minute settling the action, the court's decree would be res judicata. In addition, section 65(1) of the 1985 Act,
which conferred power on a permanent trustee to compromise any claim made
against or on behalf of the sequestrated estate, prevented the minuter from now
embarking on proceedings to reduce the disposition. Finally, the minuter had an alternative
procedure available under section 3(7) of the 1985 Act, which permitted him to
apply to the sheriff to consider the pursuer's actings.
[5] By
interlocutor dated 27 July 2007 Lord Ordinary granted the minuter's
motion and allowed him to be sisted as an additional pursuer in the
action. He held that it was competent
for the minuter to raise an action for reduction of a gratuitous alienation
under section 34 of the 1985 Act, even though the pursuer had already done so;
nothing in the 1985 Act prevented such a course of action. Nor had the position changed merely because
the pursuer and the defender had entered into an agreement to compromise the
action. If the pursuer and defender
wished to argue that the joint minute amounted to res judicata as against the minuter it would be appropriate if that
were addressed in the context of the action rather than in separate
proceedings. It was not clear precisely
when the joint minute had been signed, but the court had not yet interponed
authority to it. Different considerations
might have applied had the court done so.
The pursuer and the defender had argued that section 65(1) of the 1985
Act prevented the minuter from exercising his right under section 34. The Lord Ordinary thought that it would be
more sensible for that issue to be addressed and resolved in the present
action. He accordingly concluded that it
was competent to grant the minuter's motion.
[6] The remaining
question was whether the Lord Ordinary should exercise his discretion and allow
the minuter to be sisted as an additional pursuer. He concluded that he should do so. It was arguable that, in reaching a
compromise with the defender as to the amount to be paid to reimburse the
sequestrated estate for the gratuitous alienation, the pursuer had erred in law
as to the extent of the defender's right to receive reimbursement for the funds
that she had expended in connection with the subjects and in respect of the
increase in value of the subjects that had taken place since March 2001. Nevertheless, any such error had no bearing
on the nature of the minuter's right to seek reduction of the disposition by founding
on section 34; consequently the possibility of an error of law should be left
out of account. It was, however,
arguable that, if the minuter were able to move for decree of reduction, the
court might have evidence before it that would enable it to find in the minuter's
favour. The result of that could well be
that more assets were available to the pursuer for distribution among the
creditors of the debtor. Matters would become
more complicated for all parties if the minuter were required to raise further
proceedings, whether relying upon section 34(1) of the 1985 Act or by applying
to the sheriff in terms of section 3(7) of the same Act. The Lord Ordinary accordingly decided to
grant the minuter's motion
[7] After granting
the minuter's motion, the Lord Ordinary appointed the action to call by order,
first to enable submissions to be made on the defender's motion to interpone
authority to the joint minute and secondly to discuss further procedure. Before that happened the pursuer and defender
had enrolled motions for leave to reclaim the decision to sist the minuter as
an additional pursuer. At the by order
hearing, which was held on 28 September 2007, counsel for the pursuer submitted
that if authority were to be interponed to the joint minute the pursuer would
no longer have any interest in the action.
Counsel for the defender stated that the defender intended to implement
the agreement that she had reached with the pursuer and to pay the sum that had
been agreed between them. If authority
were to be interponed to the joint minute and decree granted in terms thereof
the minuter would require to decide what he intended to do. Counsel for the defender recognized that, in
view of the interlocutor sisting the minuter as a party, it would be necessary
to amend the joint minute to provide that the court was being moved to
assoilzie the defender from the conclusions of the summons in so far as they
were directed against her by the pursuer.
The minuter intimated that he opposed the motion for decree in terms of
the joint minute and also the motions for leave to reclaim.
[8] The Lord
Ordinary decided to refuse in hoc statu
the motion to grant decree in terms of the joint minute. He took the view that to grant such a decree
would possibly pre-empt and would in any event complicate the issues that the
minuter wished to raise in the present action.
It was, moreover, unclear on the information available when any
agreement between the pursuer and the defender was entered into and when the
joint minute was signed. On any view,
interponing authority to the joint minute might increase the difficulties in
the action. The Lord Ordinary
nevertheless granted leave to reclaim against that decision.
Submissions before the
Inner House
[9] The agreement between the pursuer and the
defender to settle the action assumed some significance in the arguments
presented, and we should accordingly note the explanation that we were given by
counsel for the pursuer as to how settlement had come about; his explanation
was acquiesced in by counsel for the defender.
In her defences to the action the defender had averred that the value of
the subjects after deduction of a secured loan was approximately £50,000;
consequently the value of the one half share disponed to her was approximately
£25,000, and she had offered to pay that sum to the pursuer to settle the
action. She further averred that she had
used an inheritance from her mother to pay off the total indebtedness secured
over the subjects and had expended further sums in improving the subjects,
which had increased their value. She
accordingly contended that in any settlement between the pursuer and the
defender account should be taken of these matters, and also of the increase in
market value of the subjects by reason of the passage of time following the
sequestration; otherwise the pursuer would be unjustifiably enriched. The pursuer had taken advice on the defences
and had been advised that it was appropriate to deduct from any sum payable by
the defender to the pursuer the amount of the secured indebtedness repaid by
the defender and any increase in value attributable to her expenditure. That led to a suggestion that the value of
the defender's half share of the property was approximately £85,000. That figure had been put to the defender as a
basis for settlement. The proposal had
been refused by the defender, who reiterated her offer of £25,000. Negotiations had followed, and the defender
agreed to increase her offer to £70,000.
That was accepted, and it was further agreed that no expenses should be
due to or by either party. Counsel
thought that the expenses of process were in the region of £2,000.
[10] Counsel for
the pursuer submitted that the Lord Ordinary had erred in law in sisting the
minuter as an additional pursuer; such a course was not competent, or was in
any event an unreasonable exercise of his discretion. The Lord Ordinary had
failed to give weight to the fact that the pursuer and the defender had agreed
to settle the action on the basis that the defender would pay the pursuer
£70,000 in return for absolvitor; that agreement had been embodied in a joint
minute. The parties' agreement brought
the action to an end; that agreement was binding as soon as the joint minute
had been signed, and it was not necessary for a binding agreement to settle an
action that the joint minute should be lodged in court: Jongejan v Jongejan 1993 SLT 596, at 597; McAthey v The Patriotic Investment Society Ltd 1910 SC 584, at
586; Lothian v Lothian 1965 SLT 368. On
that basis, the Lord Ordinary ought to have given effect to the joint minute
and to have pronounced decree of absolvitor; at the same time he should have
refused to allow the minuter to be sisted as a party.
[11] Counsel for
the pursuer further submitted that the Lord Ordinary had erred in law by
failing to give weight to the powers and duties of the pursuer as permanent
trustee under sections 3(1)(a), 34(1)(b) and 65(1)(b) of the Bankruptcy
(Scotland) Act 1985. Furthermore, the
Lord Ordinary had failed to give weight to the possibility that the minuter
could have the pursuer's actions as permanent trustee considered by the sheriff
under section 3(7) of the Act. Counsel's
analysis of these provisions was as follows.
Section 3(7) provided a remedy to any creditor who was dissatisfied with
any act of the trustee. It conferred wide
powers on the sheriff. In an appropriate
case it would be possible to reduce an agreement between the permanent trustee
and the debtor, although in the present case, if the minuter were successful in
such an application, it is more likely that an award would be made against the
permanent trustee, who might be obliged to make a contribution to the
sequestrated estate. Until the sheriff
had reached a determination in an application under section 3(7), however, the status quo should prevail, especially as
any remedy was likely to be financial if the pursuer were wrong in concluding
the settlement. Section 31(1) and (8)
provided that the whole estate of the debtor should vest in the permanent
trustee. Against that background,
section 34 provided that gratuitous alienations were challengeable by either a
creditor or the permanent trustee. In
the present case the challenge had been made by the permanent trustee. Section 65 then provided that the permanent
trustee might make a compromise with regard to any claim of whatever nature
made on behalf of the sequestrated estate, and that such a compromise should be
binding on the creditors and the debtor.
Thus the permanent trustee could settle an action and bind a creditor
such as the pursuer.
[12] Counsel for
the pursuer further submitted that the Lord Ordinary had erred in law by giving
weight to the contention by the minuter that the minuter had separate title and
interest to seek reduction of the disposition by the debtor of his share of the
subjects, even though the pursuer had already raised such an action and had
reached agreement with the defender as to the disposal of that action and the
pursuer's claim against the defender. In that way any interest of the minuter
had been elided.
[13] Counsel for
the defender adopted the submissions for the pursuer. He further submitted that the scheme of the
1985 Act was that the permanent trustee held a trump card. Under sections 3 and 31 the whole estate
vested in the trustee. Section 65(1)(b)
then permitted the trustee to act on behalf of all of the creditors in
compromising an action. He had power to
deal with the estate and reach agreement in such a way as to bind all other
creditors. Otherwise the scheme of the
Act would be imperilled.
[14] The minuter
appeared in person. He presented certain
arguments dealing with the competency of the reclaiming motion, but in view of
the decision that we have reached it is unnecessary to say anything about those
in this opinion. In the course of his
submissions he adopted the reasoning of the Lord Ordinary. In particular, he submitted that section
34(1) of the Bankruptcy (Scotland) 1985 permitted a creditor to
challenge a gratuitous alienation; that was of particular significance in cases
where a creditor had the main interest in challenging an alienation, or where a
creditor had an interest adverse to the permanent trustee.
The Bankruptcy (Scotland) Act 1985
[15] The minuter
founds on the provisions of section 34 of the Bankruptcy (Scotland) Act 1985. Section 34(1) is in the following terms:
"Where this subsection applies, an
alienation by a debtor shall be challengeable by -
(a) any
creditor who is a creditor by virtue of a debt incurred on or before the date
of sequestration ...; or
(b) the
permanent trustee, the trustee acting under the trust deed or the judicial
factor, as the case may be".
According to its terms, therefore, the section contemplates
two distinct rights of challenge: that of a qualified creditor and that of the
permanent trustee or equivalent. Under
the previous law, both the trustee in sequestration and a qualified creditor
were entitled to challenge a gratuitous alienation, whether at common law or under
the Act 1621 c. 18: Goudy, The Law of
Bankruptcy in Scotland (4th edition, 1914), 33-34, 52-53; the trustee's
title was conferred by section 9 of the Bankruptcy (Scotland) Act 1913. The right of a creditor to challenge
gratuitous alienations and fraudulent preferences can be important. This is illustrated by Brown & Co. v McCallum
1890, 18 R 311; the case deals with illegal preferences, but the same
principles have been treated as applying to gratuitous alienations: see the
passages in Goudy cited above. In that
case the trustee in sequestration had not attempted to reduce a security
granted by the bankrupt as an illegal preference. The court nevertheless held that individual
creditors had title and interest to bring an action for reduction of the security
as an illegal preference. Lord Kinnear
(at page 316) stated that the pursuers had a special interest of their own
because the security granted by the bankrupt, if it were permitted to stand,
would exclude their plea of retention over part of the sequestrated
estate. He further held that the
pursuers had a good title under the Act of 1696 because they were admitted to
be prior creditors. It had been argued
that the Bankruptcy Act 1856 had transferred the title of individual creditors
to the trustee in sequestration, but that argument was rejected. On this point Lord Kinnear stated (at page 317):
"It may very well be that a single
creditor, by reason of a security which he holds over part of the bankrupt's
estate, may have an interest either adverse to the general body of creditors,
or in which they do not participate; and in such a case the trustee may have no
interest, and therefore no title to reduce for behoof of the general body. But then the trustee takes the estate for
behoof of the general body, subject always to the securities which existed at
the date of the sequestration; and it seems to me to follow that the creditors
who hold such securities cannot be deprived of their right to make them
effectual by setting aside any fraudulent or illegal preference which may stand
in the way of their legal operation, merely because the statute has extended to
the whole body of creditors the benefit of certain challenges, which were
previously available only to a particular class".
[16] The Act 1621
c.18 has been replaced by section 34 of the 1985 Act. The enactment of the latter section followed
a recommendation of the Scottish Law Commission, contained in their Report on Bankruptcy and Related Aspects of
Insolvency and Liquidation (Scot.
Law Com. No. 68), published in
1982. The question of title to challenge
alienations and preferences is considered at paragraph 12.21 of the report:
"We have already noted that challenge
under the 1621 Act may be made by any creditor whose debt was contracted before
the date of the alienation. It might be
suggested that a requirement of sequestration or its equivalent before a
statutory challenge can be made would remove the need for individual creditors
to retain their right of challenge, because the creditors will ex hypothesi be represented by a trustee
in sequestration or a person similarly empowered to make the challenge. The reported cases show, however, that there
may be circumstances where an individual creditor is the person mainly
interested in the reduction of an alienation or has an interest in the
reduction adverse to that of the trustee [reference was made to Brown & Co. v McCallum, supra]. Accordingly, it would be unsafe to exclude an
individual creditor from the benefits of the statutory challenge. We recommend, therefore, that the statutory
challenge should be available to any creditor in respect of a debt incurred by
the debtor at any time before the date of the latter's sequestration...".
The draft Bill annexed to the report dealt with gratuitous alienations
at clause 33; clause 33(3) is in terms which are almost identical for all
material purposes to those of section 34(1) of the 1985 Act. It is accordingly clear that the reference to
the creditor's right in the latter subsection was deliberately inserted in
order to deal with cases where one creditor is the person who has the principal
interest in the reduction of an alienation, or where the interest of a creditor
conflicts with the interest of the trustee or the generality of creditors. For this reason we are of opinion that the
separate right of the creditor is an important feature of section 34, and that
it should be given full effect unless there are compelling reasons to the
contrary.
[17] The existence
of separate rights in the trustee and individual creditors can no doubt give
rise to procedural complexities. It
seems to us, however, that these can be dealt with in a commonsense fashion,
for example by permitting the trustee to refrain from active participation in
proceedings, or by ensuring that a creditor who brings a successful challenge
accounts for any benefit to the sequestrated estate so far as that is
appropriate. In any event, we are of
opinion that procedural considerations should not be an obstacle to the
existence of a separate right in a creditor.
Rules of procedure are designed to facilitate the proper application of
the law, not to obstruct it. The result
is that the minuter has clear title and interest to reduce the gratuitous
alienation under section 34.
[18] The pursuer
relied on section 65(1) of the 1985 Act to argue that she was entitled to
compromise the present action and that any such compromise would bind the
minuter as an individual creditor. In
our opinion this argument cannot be sustained.
Section 65(1) is in the following terms:
"The permanent trustee may (but if
there are commissioners only with the consent of the commissioners, the
creditors for the court) -
(a) refer
to arbitration any claim or question of whatever nature which may arise in the
course of the sequestration; or
(b) make
a compromise with regard to any claim of whatever nature made against or on the
half of the sequestrated estate;
and the decree arbitral or compromise
shall be binding on the creditors and the debtor".
Under section 172 of the 1913 Act the trustee was entitled,
with consent of the commissioners, to "compound and transact... any questions
which may arise in the course of the sequestration regarding the estate, or any
demand or claim made thereon". Any such
compromise or transaction was declared to be binding on the creditors and the
bankrupt. Under the 1913 Act the
election of commissioners was mandatory, but under the 1985 Act this is no
longer so. The Scottish Law Commission
recommended that provision should be made for the continued participation of
creditors in the supervision of the trustee's administration through
commissioners (op. cit., paragraphs 4.30 and 10.9) and that in the absence of
commissioners the Accountant in Bankruptcy should exercise general supervision
of the actings of the trustee. Despite
this recommendation, the election of commissioners is in practice relatively
unusual; there were no commissioners in the present sequestration. Section 65(1) is perhaps somewhat curiously
framed, in that if there are commissioners the creditors or the court may
supply consent in place of those commissioners, but if there are no
commissioners the trustee has an apparently unfettered power to reach a
compromise. We do not think, however,
that that affects the present case; because there are no commissioners it seems
that, on the wording of the subsection, the permanent trustee can act without
obtaining any consent.
[19] Nevertheless,
we are of opinion that on its proper construction the pursuer's power under
section 65(1) to make a compromise cannot be used to defeat the independent
right of a creditor to reduce a gratuitous alienation under section 34, or
indeed at common law. A number of
reasons exist for this conclusion. In
the first place, section 65(1) permits the permanent trustee to compromise "any
claim... made against or on behalf of the sequestrated estate". The right of an individual creditor under
section 34(1) to bring proceedings for reduction of a gratuitous alienation is
an independent right conferred on the creditor; it is not in any sense a right derived
from the permanent trustee; nor does the creditor act on behalf of the
sequestrated estate. Consequently it
cannot in our view be regarded as a claim "made on behalf of the sequestrated
estate". In some cases, no doubt, the
creditor will have to account in whole or in part for any benefit obtained
through the reduction, but that is merely the consequence of a successful
reduction; it does not affect the creditor's independent title to challenge the
alienation. The independent nature of the right appears to us to be clear from
the wording of section 34(1). It is also
noticeable that under the law prior to 1985 the right of a creditor to
challenge an alienation was regarded as independent of the trustee, and the
clear intention of the Scottish Law Commission (op. cit., paragraph 12.21) was
to maintain an independent right. In the
second place, the independent nature of the creditor's right becomes important
where his interests conflict with those of the permanent trustee or the general
creditors. That is mentioned by Lord
Kinnear in Brown & Co. v McCallum, supra, and also by the Scottish Law Commission (op. cit.,
paragraph 12.21). Where such a conflict
of interest exists it would clearly be most unsatisfactory if the permanent
trustee had power to defeat the creditor's independent right. If the intention of the statute were to
achieve such a result clear language would be required, and in our opinion
section 65(1) comes nowhere near the requisite clarity. This seems to us to be a point of
considerable importance. In the third
place, section 34 is part of the substantive provisions of the 1985 Act; indeed
the power to challenge gratuitous alienations can be regarded as one of the
most important features of the legal regime that applies to sequestration and
its corporate equivalents. Section 65,
by contrast, is found in the part of the statute headed "Miscellaneous and
supplementary", and is essentially concerned with matters of procedure. It is
unlikely that a provision falling within the latter part of the Act would be
capable of defeating a right that is expressly conferred upon a creditor by the
substantive provisions in the earlier parts of the Act.
[20] In the present
case we are satisfied that there is at least a potential conflict of interest
between the pursuer and the minuter. The
compromise embodied in the joint minute between the pursuer and the defender
was no doubt more than adequate to pay the pursuer's own fees and outlays, and might
confer some dividend on creditors. The
minuter, however, claims that it represented an undervaluation of the claim
against the defender and that he, as the principal creditor in the
sequestration, will suffer from that undervaluation. There may well be substance in this
contention. After taking advice from
counsel the pursuer had initially valued the defender's half share of the
property at £85,000. After negotiation,
the pursuer had accepted £70,000. In
addition, the settlement had been reached on a basis that no expenses would be
payable by or to either party; those expenses were said by the minuter to amount
to in excess of £33,000, although the judicial expenses would be a lesser
amount. The concessions made by the
pursuer seem substantial. In these circumstances
we are of opinion that it would be a startling result if the pursuer were able
to use the power in section 65(1) to prevent the minuter from exercising his
independent right under section 34(1).
[21] The pursuer
and the defender further founded on section 3(7) of the 1985 Act. This subsection provides as follows:
"Where the debtor, a creditor or any
other person having an interest is dissatisfied with any act, omission or
decision of the permanent trustee, he may apply to the sheriff and, on such an
application being made, the sheriff may confirm, annul or modify any act or
decision of the permanent trustee or may give him directions or make such order
as he thinks fit".
This subsection did not form part of the original version of
the 1985 Act; it was added by paragraph 1 of Schedule 1 to the Bankruptcy (Scotland) Act 1993. The argument for the pursuer and the defender
was that section 3(7) provided the minuter with a remedy if he wished to
challenge any decision made by the pursuer as permanent trustee. The availability of that remedy meant that
the minuter should not be entitled to intervene in any action brought by the
pursuer for reduction of a gratuitous alienation.
[22] Section 3(7)
is part of the section dealing with the functions and duties of the permanent
trustee. It is a provision of general
application, but it is essentially procedural in nature; it is designed to enable
any person with an interest in the sequestrated estate, including a creditor,
to challenge any act, omission or decision of the permanent trustee without
embarking on proceedings for judicial review, a remedy which is of course only
possible in the Court of Session. We are
of opinion that this subsection does not remove or detract in any way from the
right of a creditor to raise proceedings under section 34(1). As explained above, section 34(1) confers a
substantive right on a creditor, and the availability of a remedy in lieu of
judicial review does not appear to us to affect that substantive right. Moreover, the independent right of a creditor
under section 34(1) assumes particular importance where there is a conflict of
interest between that creditor and the permanent trustee. In that situation the remedy provided by section
3(7) appears a much less satisfactory remedy.
Indeed, counsel for the pursuer accepted that if in the present case the
minuter were successful in an application under the latter subsection, the
remedy would probably take the form of financial redress provided to the
sequestrated estate by the pursuer. That
suggests that the minuter would require to demonstrate that the pursuer had not
acted properly, rather than merely requiring to demonstrate that there had been
an alienation by the debtor at an undervalue.
Establishing improper conduct on the part of the pursuer seems to us to
place a significantly higher burden on the minuter than merely permitting him
to enter an action for reduction of a gratuitous alienation.
[23] For the
foregoing reasons we are of opinion that the minuter has an independent right
of action under section 34(1) and that that right is not affected by the
existence of either section 65(1) or section 3(7). On that basis we consider that the Lord
Ordinary was fully entitled to permit the minuter to be sisted as an additional
pursuer in the action. As he pointed
out, to follow that course would allow the parties' rights and obligations to
be settled in one process, which is likely to be less expensive than raising a
separate action and is likely to lead to a more rapid resolution of the
dispute.
The joint minute
[24] The pursuer presented a further argument
that the execution of the joint minute had settled the action, at least as
between the pursuer and the defender, and that the Lord Ordinary ought for that
reason to have interponed authority to the joint minute and to have assoilzied
the defender from the conclusions of the summons, at least so far as directed
against her by the pursuer. The
chronology of the joint minute was as follows.
We were informed that on 20 April 2007 agreement was reached between a
member of the pursuer's staff and a representative of the defender's
agents. The defender's agents were told
to put to the agreement into a joint minute, which was duly done. The second signature on the joint minute was
appended on 23 April, between 4.30 and 4.45p.m.
The joint minute was lodged the following day, 24 April. The minuter's motion was enrolled on 22
April, and the hearing was fixed for 25 April.
The status of the joint minute was of course raised at that hearing.
[25] It is clear
that a joint minute is binding on the parties to an action as soon as it is
signed on behalf of all of them; it is not necessary for its validity that it
be lodged in court or that it should have authority interponed through an
interlocutor of the court: Jongejan v Jongejan 1993 SLT 596, at 597; McAthey v The Patriotic Investment Society Ltd 1910 SC 584, at 586; Lothian v Lothian 1965 SLT 368. In
the present case, however, the joint minute could not bind the minuter because
he was not a party. This appears to have
been accepted by the representatives of the pursuer and the defender because
they executed a second version of the joint minute. The original joint minute was made available
to us. This simply narrated that the
action had been settled extrajudicially and moved the court to assoilzie the
defender from the conclusions of the summons and to find no expenses due to or
by either party. In the Lord Ordinary's
second opinion, however, it is stated that at the hearing held on 29 September
2007 counsel for the defender accepted that, in view of the Lord Ordinary's
interlocutor of 27 July 2007, which allowed the minuter to be sisted as an
additional pursuer, it would be necessary to amend the joint minute to the
effect that the court was being moved to assoilzie the defender from the
conclusions of the summons in so far as they were directed against her by the
pursuer. That difference appears to us to be material. By the time any amended joint minute was
executed, the minuter had been sisted as a party, and any joint minute could
not affect his position; hence the
tendering of the amended joint minute. That
is the version of the joint minute that the Lord Ordinary ultimately had to
consider, and on any view that version post-dated the Lord Ordinary's decision
to allow the minuter to be sisted as an additional pursuer.
[26] In the
circumstances we consider that the Lord Ordinary was fully entitled to refuse
to give effect to the joint minute. He
did so on the basis that another party, the minuter, had been permitted to
intervene in the action; consequently to grant decree in terms of the joint
minute would possibly pre-empt and would in any event complicate the issues
that the minuter wished to raise. The
Lord Ordinary further remarked that it was unclear when any agreement between
the pursuer and the defender was entered into and when the joint minute was
signed. We were given a full explanation
of these matters; it appeared that the joint minute had been entered into after
the petitioner's motion was enrolled, and in any event the joint minute that
was finally put forward was different in a material respect from the original
version. Either of these factors might
have been a good reason for refusing to interpone authority to the joint
minute. Perhaps more importantly, as we
have mentioned above at paragraph [20], there were substantial doubts about the
terms of the settlement that was embodied in the joint minute; that was why the
Lord Ordinary permitted the minuter to be sisted as an additional pursuer, and
that in turn was why he refused to give effect to the joint minute. The matter was ultimately one that fell
within the Lord Ordinary's discretion.
It cannot be argued that he erred in law; nor can it be argued that his
decision was one that no reasonable judge could properly reach. We accordingly
decline to interfere with the Lord Ordinary's decision.
[27] We should add
that, even if effect were given to the joint minute, a further problem would
arise. The result of the joint minute
would be that the defender was assoilzied from the conclusions of the action
brought against her by the pursuer. The
question would then arise as to whether that would give rise to a plea of
compromise against the minuter if he were to raise a separate action as a
creditor. It is not necessary for us to
express an opinion on this matter, although it can be said that, if the grounds
in the second action were not precisely the same as those in the present action
(for example, actual fraud in one action but a mere alienation at an undervalue
in the other), the plea of compromise might not be available.
Decision
[28] For the foregoing reasons we are of opinion
that the Lord Ordinary's opinion cannot be challenged. We will accordingly refuse the reclaiming
motion and remit to the Lord Ordinary to proceed as accords.