Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2012] CSOH 184
P785/12	OPINION OF LORD MALCOLM in the Petition of GARY STEVEN FRASER and another as the Joint Administrators of Prestonpans (Trading) Limited Petitioners; for an order under and in terms of sections 242(4) and 243(4) of the Insolvency Act 1986 ________________

Petitioners: Mrs Gillies, Solicitor Advocate; Pinsent Masons LLP

Respondents: Wolffe QC, Delibegovic-Broome; Simpson & Marwick

4 December 2012

[1] In this petition the joint administrators of Prestonpans (Trading) Limited ask the court to reduce an assignation granted by the company in favour of Alexander Inglis & Son Limited dated 10 and 14 November 2011. Only the assignees have entered appearance in opposition to the petition. The petitioners claim that the assignation amounted to a gratuitous alienation in terms of section 242 of the Insolvency Act 1986, failing which it was an unfair preference in terms of section 243.

[2] Mr Wolffe QC has moved the court to dismiss the petition as incompetent. He argued that the remedy of reduction is available only by way of summons, not petition. Mrs Gillies, the solicitor advocate for the petitioners, relied upon the terms of rule of court 74.15, which provides as follows:

"An application or appeal under any provision of the Act of 1986...during an administration shall be -

(a) where no previous application or appeal has been made, by petition, or

(b) where a petition for an order in respect of an administration has been lodged, by note in the process of that petition."

[3] Mr Wolffe submitted that the term "application" in the rule refers to incidental applications connected with the administration process itself, for example those arising under schedule B1 to the Act. Challenges involving third parties brought under sections 242/3 are not applications within the meaning of the rule. The rule was amended to introduce a reference to petitions after the introduction of "out of court" administration procedure by the Enterprise Act 2002. Thereafter it could no longer be assumed that incidental applications relating to an ongoing administration could be made by way of a note in an existing process. (The present case involves an administration which began without any formal court procedure.)

[4] Mr Wolffe submitted that the structure of the rule suggests that it allows petition procedure for the kinds of applications which would otherwise be brought by way of a note in an existing administration process. He acknowledged that there is a recent example of a challenge of the current nature being brought by way of petition and granted by the Lord Ordinary, cf Joint Administrators of Questway Limited v David Simpson [2012] CSOH 107. However the competency of the procedure was not raised as an issue in that case.

[5] Mr Wolffe readily accepted that, in the present case, the adopted procedure is unlikely to cause any unfairness, injustice or practical problems. However he referred to recent Inner House cases which were disposed of on grounds of competency raised only by the appeal court judges themselves. He made no apology for taking what might otherwise be seen as a somewhat technical point. He was doing so in order to avoid potential complications down the line.

[6] Mrs Gillies stressed that the petition was brought under sections 242 and 243 of the 1986 Act. It relates to an application under the 1986 Act, and hence is covered by rule 74.15. It is an application relating to or incidental to the administration. Mrs Gillies relied upon the concession that no injustice or unfairness is being caused, nor is likely to be caused by the use of petition procedure. In short it was submitted that a straightforward interpretation of the rule supports the course adopted by the administrators. If it becomes necessary, a commercial action will be commenced, but this would only cause delay and extra expense.

Discussion

[7] Mr Wolffe cited a large number of examples of proceedings of the current nature being raised by way of ordinary action. That this is the appropriate procedure is supported by references in various textbooks. Mrs Gillies did not mount any real challenge to Mr Wolffe's submission as to the general practice. She did refer to Questway as a precedent in her favour, though she acknowledged that the point at issue was not raised for consideration and decision. Both counsel proceeded on the basis that the question turns on the correct interpretation of rule of court 74.15.

[8] Before the 2002 Act, rule 74.15 was in the following terms:

"(1) An application or appeal under any of the following provisions of the Act of 1986 or the Insolvency Rules shall be made by note in the process of the petition for an administration order which is in force;

(a) section 13(2) (application for appointment to fill a vacancy in office of administrator);

(b) section 14(3) (application by administrator for directions);

(c) section 15(2) (application by administrator for power to dispose of property subject to a security);

(d) section 18(1) (application by administrator for discharge or variation of administration order);

(e) section 19(1) (application for removal from office of administrator);

(f) section 22(5) (application for release from, or extension of time for, obligation to submit statement of affairs);

(g) section 27(1) (application for protection of interest of creditors and members);

(h) rule 2.6(2) (appeal against decision of administrator as to expenses of submitting statement of affairs);

(i) rule 2.16(3) (application by administrator for increase of remuneration); and

(j) any other application under a provision relating to administration orders not specifically mentioned in this part.

(2) An application by an administrator to extend the period for sending an abstract of his receipts and payments under rule 2.17(2) of the Insolvency Rules shall be made by motion in the process of the petition."

Mrs Gillies suggested that sub-paragraph (1)(j) covered applications under sections 242/3 of the 1986 Act. However, standing the type of applications specifically mentioned in the earlier sub-paragraphs of the rule, I find this argument unconvincing. It would be stretching the term "any other application under a provision relating to administration orders" beyond breaking point to suggest that it covers section 242/3 challenges to contracts entered into by the company. Such are not applications "under a provision relating to administration orders."

[9] In my view it is clear that the rule was redrafted in its current form simply to reflect the fact that, after the passing of the 2002 Act, applications and appeals of the kind mentioned in the pre-existing rule might, for the first time, require to be presented in the absence of any court process concerning the relevant administration. In such circumstances the application is to be made by way of petition. In respect of court appointed administrations, the practice remains as before, namely by way of note in the petition process. I do not consider that there was any intent to widen the scope of the applications covered by the rule. There was no reason for such an extension. It is most unlikely that there was any desire to innovate on the pre-existing practice in respect of reductions proceeding by way of ordinary action, not petition. Were it otherwise, it would follow that, in respect of court appointed administrations, such proceedings would have to be raised by way of a note in the petition process. That would be a very surprising development, which, in my view, would require clear wording.

[10] The overall result is that I interpret the term "application" in rule 74.15 in the limited sense suggested by Mr Wolffe, namely that it covers an application which relates to the supervision of, and is incidental to the administration, such as those specifically mentioned in the pre-existing rule; and does not apply to proceedings brought by administrators under sections 242 and 243 of the 1986 Act.

[11] It follows from the above that the petitioners cannot rely upon the rule in support of the current proceedings. Mr Wolffe's submission was that, in this event, it followed that the proceedings should be dismissed as incompetent. However, I do not find it immediately obvious that this should be the result. While there has been a general practice that claims for reduction of a contract or deed are brought by way of summons, including when brought by liquidators, administrators, etc, the question remains as to whether, in the absence of any actual or perceived prejudice or unfairness, it is necessary to require the petitioners to begin again by way of an action on the commercial roll.

[12] In Paterson, Petitioner(No 2) 2002 SLT 1006 the holder of a certificate granting an exclusive right of burial in a particular lair sought an order to compel the local authority, which managed the relevant cemetery, to disinter the remains of two people who were allegedly buried in error in the lair, and to reinter the remains in accordance with the wishes of the families of the deceased. The action was brought by way of petition. In the course of his opinion, the Lord Ordinary, Lord Carloway, said:

"The present proceedings were raised by petition. Although I am not convinced that this was the proper course, no objection is taken on that ground. That being so, I do not consider that the choice of procedure has a material effect upon the substantive law. In particular, that choice cannot transform a case involving an ordinary remedy based upon legal right into a purely discretionary one." (paragraph 53)

Bearing in mind that incompetency is a matter pars judicis, the implication of the above is that his Lordship did not consider that the use of an improper form of process disabled the court from dealing with the substance of the matter. In that case no objection was taken, but, in principle, this cannot cure a fundamental incompetency in the chosen form of procedure. In Law Hospital NHS Trust v The Lord Advocate 1996 SC 301, a bench of five judges decided against holding that the action was incompetent because there was no proper contradictor, but indicated that future similar cases should proceed by way of petition procedure. (The case concerned the proposed withdrawal of treatment from a person who was in a vegetative state.) Reference can also be made to Watson v Robertson (1895) 22 R 362 at 366 per Lord President Robertson.

[13] In Tomkins v Cohen 1951 SC 22, Lord Keith discussed some of the distinctions between the Court of Session processes of summons and petition. He observed that they have different historical origins and purposes.

"A summons was a writ issued in the Kings name, directed to messengers-at-arms, charging a defender to appear within a certain period, if he wished to resist decree passing against him...A petition is an ex parte application addressed to the Lords of Council and Session and seeks their aid for some purpose or other, eg, by supplying some deficiency of power in the petitioner, in protecting pupils and minors, by exercising some statutory jurisdiction, or the nobile officium in a variety of matters. We are entirely masters of the procedure in the petition, subject to any regulations thereanent made by Act of Sederunt..."

[14] In Renyana-Stahl Anstalt v MacGregor 2001 SLT 1247 Lord Macfadyen discussed the competency of including an ancillary claim for declarator in the prayer of a petition for rectification of a disposition. The relevant rule specified a summons in the event that rectification is sought along with another remedy or remedies. His Lordship continued: "The purity of the historical distinction (between summons and petition) has...been blurred in a number of instances." Mention was made of reductions and declarators in the context of a petition for judicial review and of certain Companies Act applications. Nevertheless, the correct practice remained that a declarator is a remedy to be obtained by summons. His Lordship continued:

"There is in my view some force in counsel for the petitioners' submission that the rationale for the rule given in the early cases which he cited is diluted somewhat by the fact that this petition process has in fact proceeded in broadly the same way as an ordinary action. I take the view, however, that when the rules provide expressly for the competency of applying for rectification by summons when other remedies are also sought, I should not innovate to the opposite effect on the established practice by permitting an application for declarator to be incorporated in a petition for rectification."

Furthermore, in the specific circumstances of the case, there was "no very strong" argument of expediency to the effect that by overlooking the technical rules it would be possible to bring the dispute to a more expeditious end."

[15] The court decided the issue by reference to a specific and express prohibition in the rules of court. That aside, the matter was discussed in the context of general or proper "practice", and there was some contemplation of the possibility of "overlooking the technical rules" if that would be sensible or expeditious.

[16] In the present circumstance, when no prejudice, inconvenience or unfairness would flow from persisting with the current petition, it would be unfortunate if the petitioners were required to begin again before the same court, albeit in a different form of process, with all the consequential extra expense and delay. Many will be of the view that the court should be the master over forms of process, not vice versa. (Though perhaps not directly applicable here, the general dispensing power in rule 2.1 reflects this approach.) However, it has to be noticed that rule of court 13.1 provides:

"Subject to any other provision in these rules, all causes originating in the court shall be commenced in the Outer House by summons."

The "other provision" relied upon by the petitioners is rule 74.15, which I have held is of no assistance to them. Rule 14.2(h) allows petitions to be presented in the Outer House in respect of "a petition or other application under these rules or any other enactment or rule of law." The annotator suggests that this provision:

"is intended to catch applications to the court under primary or subordinate legislation, or the common law, whether or not specified to be by petition under the particular enactment or these rules, except where specified to be an action or an application by minute, note or motion."

[17] The discussion before me concentrated on the proper interpretation of rule of court 74.15. On that matter I have upheld Mr Wolffe's submission. However there remains a question as to whether dismissal is the proper course. I shall put the matter out by order in case either party wishes to address me further on this issue. I consider that it might be unfair to resolve the matter one way or the other without giving the parties that opportunity. Whatever the ultimate outcome, the fact that this debate has taken place adds force to the recommendation of the Scottish Civil Courts Review, chaired by the current Lord President, to the effect that the proposed Civil Justice Council for Scotland should address the abolition of the distinction between ordinary and petition procedure in the Court of Session (chapter 5, paragraph 70).