Scottish Court of Session Decisions

Petitioner: Thomson, Fyfe Ireland LLP

29 May 2009

[1] The petitioner is trustee in bankruptcy over the bankrupt estate of Paul Hynd ("the bankrupt"). The bankrupt was adjudged bankrupt in the Winchester County Court on 16 December 2008 and the petitioner was appointed as trustee of the bankruptcy estate at the adjourned meeting of creditors on 4 March 2009.

[2] The bankrupt lives in Hampshire, but the bankruptcy estate includes his interest in certain property at 5 Carmichael Street, Dundee, DD3 6LA. The petitioner avers that in order to secure that property, or the bankrupt's interest therein, for the general body of creditors and to prevent the bankrupt from disposing of, burdening or otherwise dealing with the property, he requires to register the Bankruptcy Order in the Register of Inhibitions and Adjudications in Scotland. In order to do so, he requires to seek enforcement of the Bankruptcy Order in Scotland.

[3] The application for enforcement is made by petition and seeks an order, purportedly in terms of section 426 of the Insolvency Act 1986 and Regulations 2, 3, 5 and 7 of the Cross-Border Insolvency Regulations 2006, that the order of the Winchester County Court be enforced in Scotland and a declaration that the bankrupt's interest in the Dundee property forms part of the estate of the bankrupt. The petitioner's motion for an order to that effect was starred in light of a concern which had been raised as to whether the Court of Session had jurisdiction in the matter. Mr Thomson appeared on behalf of the petitioner and I am grateful to him for his assistance.

[4] The Cross-Border Insolvency Regulations 2006 came into force on 4 April 2006. Regulation 2 provides that the UNCITRAL Model Law, i.e. the Model Law on Cross-Border Insolvency as adopted by the United Nations Commission on International Trade Law on 30 May 1997, shall have the force of law in Great Britain in the form set out in Schedule 1 to the Regulations. Schedule 3 to the Regulations, given effect by Regulation 5, makes provision about procedural matters in Scotland in connection with the application of the Model Law.

[5] Regulation 7 provides for co-operation between courts in Great Britain exercising jurisdiction in relation to cross-border insolvency. It provides, so far as material, as follows:

"(1) An order made by a court in either part of Great Britain in the exercise of jurisdiction in relation to the subject matter of these Regulations shall be enforced in any other part of Great Britain as if it were made by a court exercising the corresponding jurisdiction in that other part. ...

(3) The court having jurisdiction in relation to the subject matter of these Regulations in either part of Great Britain shall assist the courts having the corresponding jurisdiction in the other part of Great Britain."

The "subject matter of these Regulations", for the purpose of considering the ambit of Regulation 7, appears from the Model Law as enacted in Schedule 1. Paragraph 1 of Article 1, Scope of Application, states that the law applies where:

"(a) assistance is sought in Great Britain by a foreign court or a foreign representative in connection with a foreign proceeding; or

(b) assistance is sought in a foreign State in connection with a proceeding under British insolvency law; or

(c) a foreign proceeding and a proceeding under British insolvency law in respect of the same debtor are taking place concurrently; or

(d) creditors or other interested persons in a foreign State have an interest in requesting the commencement of, or participating in, a proceeding under British insolvency law."

Article 2 contains a number of definitions. The term "British insolvency law" means, in relation to England and Wales, provisions extending to England and Wales made by or under the Insolvency Act 1986, with certain exceptions; and in relation to Scotland, provision extending to Scotland made by or under the Insolvency Act 1986 and the Bankruptcy (Scotland) Act 1985, again with certain exceptions. There are definitions of "foreign court", "foreign main proceeding", "foreign non-main proceeding" and "foreign proceeding" which all point to a court or proceeding in a "State" were the debtor has an establishment within the meaning of the Regulations. It is clear that England and Wales and Scotland are not regarded for this purpose as separate States; nor are the courts, or proceedings, within England and Wales regarded in Scotland as "foreign", or vice versa. Support for this conclusion is also to be found in Article 15, paragraph 3, which, in the context of an application for recognition of a foreign proceeding, requires the application to be accompanied by a statement identifying "all foreign proceedings, proceedings under British insolvency law and section 426 requests in respect of the debtor ...". The contrast between "foreign proceedings" and "proceedings under British insolvency law" is instructive, as is the recognition of the concurrent existence of section 426 requests (see below).

[6] It seems to me to be clear from this that the UNCITRAL Model Law and the Regulations apply to assistance given by the British Courts to foreign insolvency proceedings and by foreign courts to British insolvency proceedings. They have no application to the recognition or enforcement in one British court of insolvency orders made in another British court. Accordingly, neither the Model Law nor the Regulations have any application to the question of enforcement in Scotland of a Bankruptcy Order made in England. In so far as the motion depends upon the Regulations, therefore, it must fail.

[7] I should, however, note in passing that the functions relating to recognition of foreign proceedings and cooperation with foreign courts under the Model Law and the Regulations are to be performed in England and Wales by the High Court and in Scotland by the Court of Session: see paragraph 1 of Article 4 of the Model Law, as applied to Great Britain by Schedule 1 to the Regulations. Those courts have jurisdiction if the debtor has his place of business or place of residence or assets situated in that part of Great Britain; or if the court in that part of Great Britain considers that for any other reason it is the appropriate forum to consider the question or provide the assistance requested.

[8] Section 426 of the Insolvency Act 1986 deals with cooperation between courts within the United Kingdom, and in certain other countries, exercising jurisdiction in relation to insolvency. It provides, so far as material, as follows:

"(1) An order made by a court in any part of the United Kingdom in the exercise of jurisdiction in relation to insolvency law shall be enforced in any other part of the United Kingdom as if it were made by a court exercising the corresponding jurisdiction in that other part. ...

(4) The courts having jurisdiction in relation to insolvency law in any part of the United Kingdom shall assist the courts having the corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory.

(5) For the purpose of subsection (4) a request made to a court in any part of the United Kingdom or in a relevant country or territory is authority for the court to which the request is made to apply, in relation to any matters specified in the request, the insolvency law which is applicable by either court in relation to comparable matters falling within its jurisdiction.

In exercising its discretion under this subsection, a court shall have regard in particular to the rules of private international law.

(6) Where a person who is a trustee or assignee under the insolvency law of any part of the United Kingdom claims property situated in any other part of the United Kingdom (whether by virtue of an order under subsection (3) or otherwise), the submission of that claim to the court exercising jurisdiction in relation to insolvency law in that other part shall be treated in the same manner as a request made by a court for the purpose of subsection (4)".

Sub-section (10) contains a definition of insolvency law which, for Scotland, is in much the same terms as in the Regulations (see above). These provisions remain in force notwithstanding the introduction of the Cross-Border Insolvency Regulations 2006.

[8] The jurisdiction issue which caused this motion to be starred arises because of the terms of section 426(4). This refers to assistance being given by "the courts having jurisdiction in relation to insolvency law" in any part of the United Kingdom. Thus, if a court in England is seised of insolvency proceedings, and requires assistance from a court in Scotland, the court in Scotland having jurisdiction to give such assistance is the court (or courts) "having jurisdiction in relation to insolvency law". Until 1 April 2008 there was no difficulty: the relevant court in Scotland was the Court of Session. However, by virtue of the amendments made to section 9 of the Bankruptcy (Scotland) Act 1985 by the Bankruptcy and Diligence etc (Scotland) Act 2007, the sheriff court now has exclusive jurisdiction over petitions for sequestration of an estate, i.e. bankruptcy proceedings against an individual, partnership and certain other entities. The Court of Session retains jurisdiction, albeit in certain cases a concurrent jurisdiction with the sheriff court, over corporate insolvency under the Insolvency Act 1986. The question was raised, in light of this redistribution of jurisdiction, whether in the case of an English personal bankruptcy proceeding, the court in Scotland "having jurisdiction in relation to insolvency law" was now to be regarded as the sheriff court rather than the Court of Session. If so, then, it was argued, the Court of Session had no jurisdiction to provide any assistance under section 426 of the Insolvency Act 1986 - the petitioner would have to proceed in the sheriff court.

[9] A number of problems immediately come to mind. What jurisdiction does the sheriff court have over such matters? In terms of section 9 of the Bankruptcy (Scotland) Act as amended, the sheriff court has jurisdiction to hear and determine petitions for sequestration, and also has jurisdiction to hear a petition for recall of an award of sequestration (see section 16 as amended). But it is given by that Act no wider jurisdiction in respect of bankruptcy. Further, the sheriff court's jurisdiction, even in these respects, is based on the sequestrated party's residence or place of business in the sheriffdom. In the circumstances contemplated by section 426 of the Insolvency Act 1986, the only connection with the sheriffdom is likely to be the existence of property there; and a person adjudged bankrupt in England may have several properties in different sheriffdoms, so that the petitioner might have to commence multiple proceedings if the Court of Session did not itself have jurisdiction.

[10] Fortunately none of these problems arise on the present application. They can be addressed, if need be, on another occasion. It seems to me that the concern raised about jurisdiction confuses the different functions of two quite separate parts of section 426 of the Insolvency Act 1986. The present petition is for enforcement of the English Bankruptcy Order. That is an application made in terms of section 426(1) of the Act. That provides, so far as applicable to the facts of this case, that an order made by the Winchester County Court shall be enforced in Scotland as if it were made by a sheriff court in Scotland, the sheriff court being the court exercising in Scotland the jurisdiction to make the equivalent of the English Bankruptcy Order. The manner of enforcement in Scotland is not stipulated, but there is no reason to think that a petition to the Court of Session to enforce the order is incompetent. It is part of the privative jurisdiction of the Court of Session which is to be taken away only be express enactment or by clear implication. For this purpose one does not have to consider the terms of section 426(4).

[11] Section 426(4) is, in fact, dealing with a different situation entirely. Whereas section 426(1) is concerned with enforcement of an insolvency order, sub-section (4) requires the courts of the different parts of Great Britain to assist the courts of other parts of Great Britain and other relevant countries and territories exercising corresponding insolvency jurisdiction. As is made clear by sub-section (5), the assistance is given pursuant to a request by the other court. It should be noted that the courts to which assistance must be given include the courts of a wide range of other countries specified by Statutory Instrument. And the type of assistance which may be given extends well beyond mere enforcement of an insolvency order: see e.g. In Re HIH Casualty and General Insurance Ltd. [2008] 1 WLR 852 and see also Al Sabah v Grupo Torras SA [2005] 2 AC 333. In such circumstances the identification of the relevant court having jurisdiction to provide the assistance will depend on the assistance that is required. The jurisdictional question as between Court of Session and Sheriff Court is unlikely to give rise to real problems. Thus, in the present case, when the order for enforcement of the English Bankruptcy Order has been made, it will be open to the petitioner to take appropriate steps in relation to the Dundee property. If that involves a claim to a court, the submission of that claim is treated as if it were a request made by a court under sub-section (4): see sub-section (6). At that stage, depending upon the application which is made, it would be for consideration whether the claim should be made in the Court of Session or the sheriff court where the property is situated. The choice of court at that stage is likely to be a pragmatic one.

[12] None of that arises at present and I was not addressed fully on it. For the reasons given above, however, it seems to me that the application for enforcement of the English Bankruptcy Order under section 426(1) of the Insolvency Act 1986 is properly made to the Court of Session. I shall make the order sought in the motion.