Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2016] CSOH 23

 

CA178/15

OPINION OF LORD JONES

In the cause

(FIRST) DOONEEN LIMITED, trading as MCGINNES ASSOCIATES;  and (SECOND) DOUGLAS DAVIDSON

Pursuers;

against

DAVID EMANUEL MERTON MOND

Defender:

Pursuers:  Bartos;  bto

Defender:  Howlin QC;  Balfour & Manson LLP

3 February 2016

Introduction
[1]        On 29 September 2006, the second pursuer granted a trust deed for creditors.  The original trustee and two successors to him have been succeeded by the defender, who was assumed as trustee on 26 July 2010.

[2]        The single issue in the case is whether or not the trust comprised in the trust deed came to an end upon the making of a distribution to creditors of 22.41p in the pound, on 5 November 2010.

 

Background
[3]        The following chronology is drawn from the pursuers’ pleadings and is uncontentious, except where the record of an event is attributed specifically to the pursuers:

(1)        26 May 1998:  the second pursuer took out a loan from the Bank of Scotland (“the Bank") and purchased payment protection insurance ("PPI") from the Bank;

(2)        2 March 1999: the second pursuer took out a further loan from the Bank and purchased further PPI from it;

(3)        4 December 2002: the second pursuer took out a third loan from the Bank and purchased further PPI from it;

(4)        29 September 2006: the second pursuer granted a trust deed for creditors;

(5)        October - December 2006:  the trust deed became a protected trust deed;

(8)        5 November 2010:  the defender made what he called a "first and final" distribution of 22.41 pence in the pound to the creditors under the trust deed;

(9)        5 November 2010:  according to the pursuers, the second pursuer received his discharge;

(10)      19 November 2010:  according to the pursuers, the defender was discharged as trustee;

(11)      24 January 2015:  the pursuers entered into a sole agency agreement under which the second pursuer appointed the first pursuer as his agent for the purpose of making a claim against the Bank for the mis-selling of PPI;

(12)      31 January 2015:  the second pursuer granted a letter of authority to the first pursuer and assigned to the first pursuer 30 per cent of the value of any compensation for the mis-selling;

(13)      5 February 2015:  the first pursuer made a claim against the Bank for the mis‑selling of PPI to the second pursuer;

(14)      2 April 2015:  the Bank awarded £55,910.62 to the second pursuer in respect of the PPI claim;  the letter of award declared that the amount would be paid to the second pursuer’s insolvency practitioner;

(15)      14 April 2015:  the Bank paid the PPI compensation to the defender.

The pursuers accept that the PPI claim vested in the trustee on the date of execution of the trust deed.

 

The trust deed
[4]        The following provisions of the trust deed are relevant to the issue in dispute:

"Purpose

(1)        I, Douglas Davidson … transfer to Donald Duncan MacGruther … as trustee for my creditors as at the date I sign this Trust Deed (hereinafter referred to as "my Trustee") the rights and assets which would vest in a permanent trustee in terms of sections 31, 32 and 33 of the Bankruptcy (Scotland) Act 1985 (hereinafter referred to as ‘my Estate’).

 

…

 

Trustee's Powers

(6)        I confer on my Trustee all powers I could have exercised in relation to my Estate had this Trust Deed not been granted including without prejudice to the foregoing generality the following powers …

(i)         To take possession of my Estate

 

…

Distribution of my Estate

(7)        This Trust Deed is granted for the benefit of my creditors and my Estate is to be distributed as follows:-

(First)  Payment of Expenses of Trust Deed & Trustee's Remuneration

 

…

 

(Second) Payment of Creditors

Payment of the debts due by me to my creditors as at the date I sign this Trust Deed … My Trustee shall determine as he thinks fit the time(s) when payment should be made … and whether payment should be made by way of interim or final dividend(s).

 

(Third) Payment of Surplus

My Trustee shall hold just count and reckoning with me and after making payment in implement of clauses (First) and (Second) above shall re-convey to me such of my Estate as he may not have realised and shall pay to me any remaining surplus.

 

…

 

Discharge of Debts

(10)      This Trust Deed is granted by me on condition that the creditors acceding to the Trust Deed shall discharge me of all my debts due to them on the termination of this Trust Deed unless:-

 

(i)         My Trustee reports that in his opinion I have not made full and fair surrender of my Estate or;

(ii)        The Trust Deed terminates on an award of sequestration of my Estate being made.

 

Termination of Trust Deed

(11)      This Trust Deed shall terminate on the earliest of the following events:-

(i)         An award of sequestration of my Estate …

(ii)        The final distribution of my Estate (which for the avoidance of doubt shall include a nil distribution) by my Trustee in accordance with this Trust Deed.

(iii)       The acceptance by my creditors of any composition by me.

 

Discharge of Trustee

(12)      When my Trustee considers it appropriate to wind up this trust created by the Trust Deed, he shall summon a final meeting of creditors … At the meeting of my creditors he can seek his discharge from my creditors."

 

The paragraph numbers do not appear in the trust deed, and are added for ease of reference.

 

The Bankruptcy (Scotland) Act 1985
[5]        The provisions of section 31 of the Bankruptcy (Scotland) Act 1985 (“the 1985 Act”), so far as in force on the date of the trust deed and so far as are relevant in this case, are as follows:

"(1) ... the whole estate of the debtor shall vest as at the date of sequestration in the permanent trustee for the benefit of the creditors

 

...

 

(4 Any moveable property, in respect of which but for this subsection—

 

(a)        delivery or possession; or

(b)        intimation of its assignation,

 

would be required in order to complete title to it, shall vest in the permanent trustee by virtue of the act and warrant as if at the date of sequestration the permanent trustee had taken delivery or possession of the property or had made intimation of its assignation to him, as the case may be.

 

(5)        Any non-vested contingent interest which the debtor has shall vest in the permanent trustee as if an assignation of that interest had been executed by the debtor and intimation thereof made at the date of sequestration."

 

Section 32, so far as material, provides as follows:

“(6) Without prejudice to subsection (1) above [certain income vests in the debtor], any estate, wherever situated, which—

 

(a) is acquired by the debtor on a relevant date; and

 

(b) would have vested in the permanent trustee if it had been part of the debtor's estate on the date of sequestration,

 

shall vest in the permanent trustee for the benefit of the creditors as at the date of acquisition;

 

…

 

(10) In this section ‘a relevant date’ means a date after the date of sequestration and before the date on which the debtor's discharge becomes effective.”

 

The terms of section 33 are not material to this dispute.

 

Submissions for the pursuers
[6]        Mr Bartos, who appeared for the pursuers, advised the court that the parties were agreed that, if the trust deed is properly construed as contended for by the pursuers, the pursuers are entitled to decree in terms of the conclusions of the summons.  If it is properly construed as contended for by the defender, he is entitled to decree of absolvitor.  The issue between the parties concerns the meaning in clause (11) of the words “the final distribution of my Estate... by my Trustee in accordance with this Trust Deed”.

[7]        It appears to be the defender’s contention, said counsel, that these words mean the distribution of all assets that are transferred to the trustee under clause (1) of the trust deed, whether or not the debtor or trustee are aware of their existence (“the first construction”).  The pursuers contend that these words mean the distribution determined by the trustee to be final dividend under clause (7) of the trust deed (“the second construction”).

[8]        The pursuers argue that the first construction must be rejected because it has unreasonable consequences and is in conflict with the purpose of clause (11).  They contend that the answer on this issue depends on the proper construction of the trust deed, read as a whole.  The principles applicable to the construction of the trust deed are the same as for the construction of any other unilateral document such as a will or a patent.  In support of that contention, Mr Bartos referred to Marley v Rawlings [2015] AC 129 at paragraphs 18 to 22.  These principles were summarised by Lord Clarke of Stone‑cum‑Ebony in the Supreme Court in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 (“Rainy Sky”), at paragraphs 21 to 22, and include the following:

“… the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant.  In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.”  (Paragraph 21)

 

[9]        Counsel submitted that the factors which are of particular relevance in the background to this case are, for both constructions, the purpose of the wording; for the first construction, the consequences of the lack of termination;  and for the second construction, the other wording of the deed.

[10]      It is clear that the purpose of clause (11), argued Mr Bartos, is to escape the effect of the common law and its imposition of a potentially indeterminate duration for trust deeds until creditors receive a full dividend.  The construction which gives best effect to this purpose is the one which reflects the meaning of the words in dispute.

[11]      Counsel contended that it should be appreciated that the debtor has provided that the discharge of his debts is tied to the termination of the trust.  That is the clear provision of clause (10).  It follows that the intention is that assets will continue to vest in the trustee under clause (1) as acquirenda until termination.  These acquirenda are the assets (including unvested rights of succession, or gifts or anything not acquired with post-deed income) acquired by the debtor by virtue of the incorporation into clause (1) of all assets that would have vested in a trustee in sequestration under section 32 of the 1985 Act before the discharge of the debtor.

 

The first construction
[12]      On the first construction, the termination of the trust occurs only when there has been a distribution of all assets transferred to the trustee.  The flaw in that argument is that in terms of clauses (1) and (10), assets continue to be capable of transference to the trustee until termination.  The construction leads to a circular result:  acquirenda will continue to accrue until termination but termination can only occur once acquirenda have ceased and have been distributed.

[13]      The practical effect of the first construction is that the trust must continue until the creditors have received a full dividend or until the death of the debtor.  In effect, this would be nothing more than a re-statement of the common law.  The debtor would be subject to his debts for very many years until a full dividend is paid and possibly until death.  This is far longer than most sequestrations.  But that cannot have been the intention of the debtor as is evident from clause (11) where he provides expressly in parenthesis, for the avoidance of doubt, for a termination with a “nil distribution”. 

[14]      Mr Bartos submitted that the same effect applies to assets held by the debtor at the grant of the deed of which he may have been unaware.  Neither he nor the trustee will ever be certain that there are no such assets in existence.  Yet, without such knowledge and distribution of such assets, the debtor cannot be discharged of his debts short of a full dividend.  That cannot have been intended and runs contrary to the purpose of clause (11).

[15]      Had such results been intended, clause (11) would have been unnecessary.  For these reasons it cannot have been what the debtor intended in using the words being construed.

[16]      These results cannot occur in sequestrations where the discharge of debts and simultaneous cessation of acquisition of acquirenda is not tied to the termination of the sequestration.  Discharge of debts and the cessation of the entry of assets into the sequestration can and does occur before the termination of the sequestration. 

 

The second construction
[17]      The second construction, as proposed by the pursuers, is supported by the other provisions of the deed which give wide powers of discretion to the trustee.  Thus, in clause (7)(Second), he is given power “as he think fit” to determine the time of payment to the creditors and whether payment should be made by way of interim or final dividend.  Under clause (10), he is given power to prevent the discharge of the debts if he reports that there has not been fair and full surrender of the estate.  Under clause (12), he is given power to summon a final meeting of creditors when he “considers it appropriate to wind up [the] trust created by the Trust Deed”.

[18]      The pursuers’ construction avoids the undesirable effects of the circularity of the first construction.  It achieves consistency of approach.  It accords with the purpose of clause (11) to modify the common law.  It is consistent with the creditors taking the risk of not obtaining a full dividend.

[19]      Mr Bartos submitted that, for these reasons, the reasonable person with all the background knowledge which would reasonably have been available to the debtor at the granting of the deed would have understood the debtor to have meant that “final distribution of my estate” in terms of clause (11)(ii) would coincide with what the trustee deemed to be a payment of a final dividend in terms of clause (7)(Second).  In short, the second construction should be preferred.

[20]      There being no dispute that the trustee made a payment of what he deemed to be a final dividend on or about 5 November 2010, the trust terminated at that time.  It is no longer in effect.  The issue should be answered in the affirmative.

 

Submissions for the defender
[21]      Mr Howlin QC appeared for the defender.  He said that his position was essentially as follows:

(1)        By the time the trust deed was granted, the second pursuer already possessed a right of action against the Bank for the mis‑selling of PPI, the mis‑selling having occurred on three occasions in the period of four to eight years before the date of the trust deed.  It is immaterial whether the debtor knew of the right of action at the time of granting the trust deed.

(2)        The right of action was a right which would have vested in the permanent trustee, in terms of section 31 of the 1985 Act if the second pursuer's estate had been sequestrated on the date of the trust deed.

(3)        Similarly, at the date of the trust deed, the second pursuer possessed a contingent right to receive compensation for the mis‑selling.

(4)        That contingent right would also have vested in the permanent trustee under section 31 of the 1985 Act if the second pursuer's estate had been sequestrated on the date of the trust deed.

(5)        It follows that, by virtue of clause (1) of the trust deed, the assets and rights which vested in the trustee on the date of the trust deed included the second pursuer's right of action against the bank and his contingent right to receive compensation from the bank.

(6)        Alternatively, if and to the extent that the vesting of those rights depended upon intimation to the trustee, intimation was effected by the sending of a copy of the trust deed to all of the creditors, including the Bank.

(7)        Once property has vested in the trustee, it is vested, in the second pursuer's own words, "for the benefit of my creditors as at the date I sign this Trust Deed”, as provided for in clause (1).

(8)        The second pursuer has expressly conferred upon the trustee power "To take possession of my Estate", as provided for in clause (6)(i).  As it happens, that power was inherent in the vesting in any event.

(9)        The trust purposes are set out in clause (7), namely "Distribution of my Estate".  That clause sets out a compulsory order of payment: first, payment of the trustee's expenses and remuneration; second, payment of the creditors as they stood at the date of the trust deed;  and, third, payment of any surplus to the second pursuer himself as the grantor of the trust deed.  No payment is due to the second pursuer unless and until the trustee's expenses and remuneration and the debts due to the creditors have been paid in full, because only after payment in full will there be any surplus. 

(10)      In the present case there is no surplus to be paid to the second pursuer in terms of clause (7) because all that the creditors have received thus far is 22.41 pence in the pound.  They would have to receive a further 77.59 pence in the pound before any surplus could arise.

(11)      The trust created by the trust deed has not come to an end in terms of clause (11).  The provision of that clause upon which the pursuers rely is (11)(ii):  "The final distribution of my Estate... by my Trustee in accordance with this Trust Deed”.

(12)      There has so far been no final distribution of the Estate.  It is true that the defender, in ignorance of the existence of the PPI claim, described the only distribution to creditors thus far as the "first and final distribution" but what he called it does not matter; what matters is whether, as a matter of fact, the distribution was a final one.  Here, it could not have been a final distribution because, at the time at which it was made, there remained in the defender's hands an asset which he still had to realise in order to apply the proceeds in the manner required by clause (7). 

(13)      Even if, contrary to what is advanced in paragraph (12) above, the distribution described by the defender as being a "first and final one" was the final one within the meaning of clause (11)(ii), it was not the final distribution "in accordance with this Trust Deed".  To labour the point, said counsel, a final distribution paid to creditors at a time when (i) those creditors have not been paid in full and (ii) there remains vested in the trustee an asset which is subject to the trust for the benefit of the creditors, would fly in the face of clause (7) and would therefore not be a final distribution "in terms of this Trust Deed".

(14)      The discharge of the second pursuer as debtor under the trust deed is neither here nor there:  it does not release from the trust those assets which are still in the trustee's hands.

(15)      Likewise, the discharge of the trustee himself is neither here nor there.

[22]      Further, said counsel, at the time when the second pursuer granted the trust deed, his purpose was to avoid sequestration.  To accomplish that, the trust deed would have to be in such terms as to persuade his creditors to accede to the trust deed.  They would be unlikely to do that if the trust deed operated in such a way as to permit the debtor to enjoy the benefit of a windfall while they remained only partly paid.  That is the result of the construction contended for by the pursuers.  The second pursuer’s intention when granting the deed, therefore, can be taken to have been that it would be construed so as to avoid such a windfall.

[23]      In response to Mr Bartos‘ contentions about acquirenda, Mr Howlin argued that section 32(6) was looking to the future.  It provides for assets which do not vest in the trustee as at the date of sequestration, but assets which “would have vested in the permanent trustee if it had been part of the debtor’s estate at the date of sequestration”.  Such assets “shall vest in the permanent trustee for the benefit of the creditors as at the date of acquisition”.  (Counsel’s emphasis)  The important matter for present purposes, contended counsel, is that section 32(6) was looking to the future.  The starting point for the application of section 32(6) is that the asset did not vest in the trustee on the date of sequestration, because it was not there to vest.  That is quite clear from the definition of “relevant date” in subsection 10 which provides that, in that section, the “relevant date” means a date after the date of sequestration and before the date on which the debtor’s discharge becomes effective.  The words of transfer as set out in clause (1) of the trust deed, insofar as they operate by reference to section 32, do not vest anything at all in the trustee on the date of the trust deed, because, by definition, on that date there are no acquirenda.

[24]      Moreover, argued Mr Howlin, the terms of clause (7) fall to be read in their context.  What is provided for there are administrative matters.  The order of payment is provided for: first, payment of the expenses of the trust deed and the trustee’s remuneration;  then payment of creditors; then payment of any surplus.  In the context of these administrative arrangements, the trustee is given some discretion.  It is for him to determine, “as he thinks fit” the time or times when payment should be made, and whether payment should be made by way of interim or final dividend or dividend.  The latter provision allows the trustee to decide whether there is to be one single dividend or, as Mr Howlin put it, payment is to be made in “dribs and drabs”.  Counsel contended that what is inherently wrong with the pursuers’ argument is their attempt to attach to these words, in the context in which they appear, weight which the words are simply not capable of sustaining.  The pursuers say that the effect of these words is to empower the trustee, as a matter of discretion, to terminate the trust.  The question is whether the provisions are intended to operate according to a particular label, or are intended to look at the reality of the assets available for distribution to the creditors.

[25]      By contrast with the terms of clause (7), clause (11) makes substantive provision for the termination of the trust deed.  It does not provide, as it could have, that the trustee could decide when the trust deed came to an end.  In these circumstances, submitted Mr Howlin, the natural meaning of the phrase “the final distribution of my Estate” is the final distribution determined as a matter of fact, not according to how the trustee may, as in this case, mistakenly characterise a distribution.

[26]      Counsel was asked by the court how, on the defender’s construction, anyone knows when the trust deed has terminated, other than on payment of a full dividend.  Mr Howlin replied that, in one sense one does not know.  Asked whether that means that, in these circumstances, one never knows whether or not the trust deed has terminated, Mr Howlin replied:  “That is absolutely the case”. 

[27]      Counsel submitted that the proposition for which the pursuers argue leads to absurd consequences in relation to the construction of the trust deed.  It would mean that the trust comes to an end under clause (11)(ii) merely by reference to the question whether the trustee has described a distribution to creditors as the "final" distribution, rather than by reference to the question whether the distribution was in reality the final distribution.

[28]      Furthermore, the pursuers' position requires the words "in accordance with this Trust Deed", where they appear in clause (11)(ii) in the expression "The final distribution of my Estate … by my Trustee in accordance with this Trust Deed", to be simply treated pro non scripto.  In the construction of deeds and other written instruments there can be good grounds for treating words and passages pro non scripto where to do otherwise would lead to absurdity, but here no such grounds exist.

[29]      The pursuers' position effectively subverts the crucial provisions of clause (7) which (i) set out the order of priority in which payments are to be made by the trustee and (ii) postpone payment to the debtor to the payment of the debts due by him to his creditors as at the date he signed the trust deed.  What the second pursuer is saying is that he is entitled to payment of the PPI compensation even though (i) the right to receive that compensation vested in the trustee from the outset, (ii) the compensation falls to be applied in the order of priority set out in clause (7), and (iii) the creditors have not been paid in full.  In other words, he proposes to derogate from his own grant by "leap‑frogging" the unpaid creditors for whose benefit the trust deed was granted.  That flies in the face of the position as stated in Bell's Commentaries:  seventh edition (“Bell’s Commentaries”) (II, 383). 

[30]      Counsel contended that, by contrast, the position espoused by the defender leads to no absurdity.  To construe the words "final distribution", where they appear in clause (11)(ii) as meaning "a distribution which is in fact a final distribution" rather than "a distribution which is described as a final distribution" makes perfect sense.  That is apparent from a consideration of two examples, neither of which is far‑fetched.

[31]      The first is that, on the date on which he grants the trust deed, the debtor knows that he has a claim for PPI compensation, but he does not tell the trustee about it.  Instead, he waits until the trustee, in ignorance of the availability of that compensation, declares what he calls a final dividend.  Thereafter, with his creditors still only partly paid, he (the debtor) claims to be entitled to the compensation.

[32]      The second is that, on the date on which the debtor grants the trust deed, neither the debtor nor the trustee is aware that the debtor has a claim for PPI compensation.  As in the first example, in the belief that there are no further assets, the trustee makes what he calls a final dividend.  Once again, the debtor thereafter claims to be entitled to the compensation.

[33]      In both of these examples, the debtors' claim to be entitled to the compensation is defeated by the fact that the right to compensation vested in the trustee at the outset, it did so for the benefit of the creditors and, after payment of the trustee's own expenses and remuneration, it is to be paid to the creditors.

[34]      The trustee's approach involves construing the trust deed as a whole, rather than simply ignoring the words "in accordance with this Trust Deed" and ignoring the inter-relationship between those words and the provisions of clause (7).  The trustee's construction gives effect to the terms and purpose of the trust deed, rather than subverting them.

 

Decision and reasons
[35]      On the authorities which were cited to me, and which are not controversial, the task for the court in this case is to determine the intention of the debtor when the trust deed was executed on 29 September 2006.  In doing that, regard has to be had to the language used in the deed.  Where there are two potential meanings to be accorded to the words that have to be considered, the meaning to be preferred is that which is more consistent with business common sense.  (See Rainy Sky)

[36]      Looking first, therefore, to the language of the trust deed, the expression “final dividend” is used in clause (7) and the expression “final distribution” appears in clause (11).  As a matter of language, they have the same meaning, because clause (7) is entitled “Distribution of my Estate.”  Mr Howlin used the two expressions interchangeably and, in my opinion, he was correct in doing so.  On the construction contended for by the defender, however, the date of the “final dividend” may be different from the date of the “final distribution”.  That would be the result in this case.  The trustee declared the payment of 22.41 pence in the pound to be the first and final distribution on 5 November 2010.  If the defender’s construction is correct, the final distribution, in fact, has yet to be made.

[37]      On the alternative construction, the final dividend and final distribution have the same meaning.  They are what the trustee declares them to be.  Linguistically, that is a more satisfactory construction than one which gives the same expression two different meanings.  Clause (7) requires the trustee to determine whether a payment is the final dividend;  “shall determine”.  He has the inherent power to do so.  In exercising that power, the trustee must act in the interests of the creditors to whom he owes a fiduciary duty.  When the trustee comes to make that determination, therefore, the creditors enjoy the protection which the trustee’s duty to them affords.

[38]      Discharge of the trust deed is not the only consequence which flows from the final distribution as provided for by the terms of the trust deed.  Clause (10) operates to discharge the debtor of all debts due by him to acceding creditors “on the termination of this Trust Deed…”  That is a reflection of the common law, as explained by the editor of Bells Commentaries, that among “the great objects generally proposed to be accomplished by means of a trust-deed” is to give to the debtor the benefit of discharge, “on the trustee being satisfied that he has fairly surrendered his effects.”  Discharge of the debts does not occur on the termination of the trust deed, however, where the trustee “reports that in his opinion [the debtor] has not made full and fair surrender” of his estate (“a surrender report”).  It is envisaged, therefore, that, even after the payment of a final dividend as determined by the trustee, the debtor may remain indebted to his creditors. 

[39]      Where the trustee has made a surrender report, it may be that his view is well‑founded and that the debtor has not made a fair and full surrender of his estate.  Consequently, assets which vested in the trustee on the execution of the trust deed will not have been distributed.  Clause (10), therefore, recognises that the trust deed may be terminated as provided for in clause (11), notwithstanding that property owned by the debtor as at the date of execution of the deed has not been distributed, and that, in these circumstances, the trust deed can nonetheless be terminated “in accordance with the trust deed”.  The phrase “in accordance with the trust deed” cannot, therefore, mean “when all the assets vested in the trustee have been distributed as a matter of fact” as Mr Howlin argues. 

[40]      Since the only clause which makes provision for termination of the trust deed is clause (11), clause (10) can only operate where there has been a clause (11) termination.  The only clause (11) termination that admits of a surrender report is a clause (11)(ii) termination.  That is because a clause (11)(i), termination by sequestration, is an exception to the clause (10) discharge provision, and the trustee is not a party to a clause (11)(iii) termination by composition.  It follows that what bars the discharge of the debts on the termination of the trust deed is the act of the trustee in making a surrender report.  There appears to be a temporal link between the termination of the trust deed and the making of the surrender report.  That strongly suggests, in my view, that the final distribution which brings the trust deed to an end is the dividend which the trustee declares to be final, not the dividend which can be seen, as a matter of fact to have been final, perhaps many years later.

[41]      It is clear from their terms, that the provisions of clause (7)(Second) are not simply administrative.  By the clause (10) route, via clause (7), it is clear that the trustee was given the power to deprive the debtor of the benefit of the discharge condition, by declaring a dividend to be final and by making a surrender report.  If the trust deed can be terminated by a combination of a clause (7) determination by the trustee that a payment is a final dividend, together with a clause (10) surrender report, there can be no reason, as a matter of language, why he could not do so, as provided for in clause (11), by making a clause (7) determination alone.  Further, if the settlor intended that his debts should not be discharged by the creditors in the event that the trustee makes a surrender report, following a clause (7) determination by the trustee, I can see no proper basis for holding that his debts should not be discharged by a clause (7) determination where the trustee makes no such report.

[42]      In my opinion, reading clause (11)(ii) in the context of the whole deed, the construction contended for by Mr Bartos is to be preferred to that of Mr Howlin.

[43]      Even if the language were such that there were two potential meanings to be accorded to the words that have to be considered, the meaning which, in my view, would fall to be preferred as being more consistent with business common sense is the meaning contended for by the pursuers.  On the defender’s construction, if what the trustee declares to be the final dividend is not, in fact, the final distribution, because there is some unknown asset vested in the trustee, the trust deed is not terminated.  Consequently, notwithstanding the trustee’s determination that the dividend is a “final dividend”, no one with an interest can proceed on the basis that the trust deed has been terminated, because there might, in fact, be an asset which is vested in the trustee of which the trustee is ignorant.  That is this case.

[44]      That has consequences for the operation of clause (10), the discharge provision.  If termination of the trust deed occurs on payment of what is, in fact, the final distribution of the estate, it may be some years after payment of what the trustee determined was the final dividend before anyone can be sure that the debtor was discharged.  That is unsatisfactory because of its uncertainty and, in my view, cannot have been what the debtor intended.

[45]      There are further unsatisfactory consequences of the defender’s construction which are not in accordance with business common sense.  Clause (12) empowers the trustee, when he considers it appropriate to wind up the trust, to call a meeting of creditors in order to seek his discharge from them.  Notwithstanding such discharge if it is granted, a contingent right which vested in the trustee when the trust deed was executed might be thought to remain vested in him if and when such right manifested itself, as Mr Howlin argues has happened in this case.  The question would then arise as to what the trustee’s duty was, if any, and to whom, if anyone, because the creditors had discharged him.  The trustee may be deceased, and further problems would arise. 

[46]      On the question of acquirenda, I agree with Mr Howlin that, if a payment declared by the trustee to be the final distribution was eventually seen to have been the final distribution in fact, assets acquired by the debtor following such payment would not present a problem, because none of the assets which became vested in the trustee on the execution of the trust deed remained vested in him at the time of the final distribution.

[47]      There is, however, another problem concerning acquirenda.  If, as in this case, a contingent right which was vested in the trustee on the execution of the trust deed manifested itself after payment of what was declared to be the final dividend, on the defender’s argument such manifestation demonstrated that the payment which the trustee determined as final was not, in fact, the final distribution of the estate.  Consequently, the trust deed was not terminated at the time of that payment.  Since it continued thereafter, the terms of section 32 of the 1985 Act continued to operate.  Any asset acquired by the debtor before his discharge, which would have vested in the trustee if it had been part of the estate on the date of sequestration, vested in the trustee for the benefit of the creditors as at the date of acquisition. 

[48]      The construction contended for by Mr Howlin, therefore, introduces another uncertainty.  A family inheritance paid to the debtor after the trustee declares a final dividend may or may not vest in the trustee for the benefit of creditors.  If, as in this case, a contingent right manifests itself after the declaration that a payment is the final dividend, the family inheritance will have vested in the trustee when it was paid, even although no one knew that at the time.

[49]      All of the uncertainties which would arise if the defender’s construction were correct, as set out in paragraphs [43] to [48] of this opinion, militate against the defender’s construction, as being inconsistent with business common sense. 

 

Disposal
[50]      I shall grant decree in terms of the conclusions of the summons.