Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2016] CSOH 45

 

A402/12

OPINION OF LADY WOLFFE

In the cause

SIMON ANTHONY CHISWELL

Pursuer;

against

(FIRST)  ANN MARIE CHISWELL;  (SECOND) NRAM, (NORTHERN ROCK ASSET MANAGEMENT);  and (THIRD) KEEPER OF THE REGISTERS OF SCOTLAND

 

Defenders:

Pursuer:  E Campbell;  Ledingham Chalmers LLP

Defender:  Gill;  TLT LLP

22 March 2016

Second defenders’ motion for dismissal on basis of no title to sue

[1]        This matter called before me for a procedure roll discussion of the second defenders’ eleventh plea-in-law, seeking dismissal of the pursuer’s action on the basis that he has no title to sue.  The second defenders moved for dismissal of the action on the basis that, while the pursuer is now a discharged bankrupt, his sequestration is ongoing and he has not secured the consent of his trustee in sequestration (the “trustee” or “the pursuer’s trustee”, as the context requires).

[2]        The second defenders did not advance any arguments in support of their plea to the relevancy.  If the second defenders’ eleventh plea is not upheld dismissing the action, they seek a proof before answer on all other pleas (reserving other arguments as to the relevancy of the pursuer’s averments) for this action.

 

Background
[3]        The second defenders are the heritable creditors by virtue of a standard security (“the standard security”) in their favour over certain subjects in Lanarkshire (“the Subjects”) granted by the first defender, Ann Marie Chiswell, the wife of the pursuer and purportedly granted by the pursuer.  The pursuer and the first defender were common owners of the Subjects.  They separated in late 2011, when the first defender moved out of the Subjects.  The pursuer continues to reside there with his children.  The third defender is the Keeper of the Registers of Scotland.  Neither the first defender nor the third defender has entered the process.

[4]        The pursuer has raised the present action seeking:

(1)  reduction of the standard security,

(2)  an order ordaining the third defender to rectify the Land Register by deleting the grant of the standard security from the title to the Subjects;

(3)  for reduction of a sheriff court decree (‘the decree’) against the pursuer and the  first defender at the instance of the second defenders granting warrant to the second defenders to take possession of, and sell, the Subjects; and

(4)  for reduction of a charge for removing from the Subjects. 

Certain interim orders are also sought.

[5]        In the submissions before me, compearing parties focused on the pursuer’s challenge to the standard security.  But for that security, it was argued, the second defenders would not have been able to obtain the sheriff court decree for possession and sale of the Subjects qua secured heritable creditors.  The decree (and the other matters) were, it was said, ancillary to the pursuer’s challenge to the standard security.  For that reason, parties confined their arguments to the question of title to sue as it bore upon the security.  No argument about title to sue was addressed to me in respect of any of the other remedies sought by the pursuer.

[6]        In essence, the ground for the reduction of the standard security is that the pursuer contends (at page 19C-D of the Closed Record) that his signature on the standard security was forged.  (This averment is less equivocal than an earlier averment that the findings of a forensic document examiner of the pursuer’s signature appended to the standard security were that “there is a possibility it [i.e. the pursuer’s signature] is not genuine”:  see Closed Record at 18D.)  The background is that the pursuer left the arrangements of the couple’s financial affairs to his wife and that a number of her business ventures had been loss‑making.  He avers that he was not aware of the grant of any standard security over the Subjects in favour of the second defenders at the time of its (in relation to him) purported grant.

[7]        In relation to the sheriff court decree, which is a decree in foro, the pursuer’s position is that he was unaware of the standard security, or of the nature of the action and decree against him, until sheriff officers attended at the Subjects to serve a charge for removing the pursuer and his three children from the Subjects.

 

Second defenders’ submissions on the pursuer’s want of title to sue
[8]        The pursuer admits that he was sequestrated on 18 June 2010, on which date Kenneth Patullo was appointed as his trustee in sequestration.  He raised this action in early 2013.  All of the orders that the pursuer seeks in this action relate to his purported interest in the Subjects.  While he is now a discharged bankrupt, his sequestration is ongoing.  He does not aver that he has raised this action with the consent of his trustee in sequestration.

[9]        As a consequence of his sequestration, the pursuer’s interest in the Subjects passed to the trustee in sequestration on the date of sequestration.  This was as a consequence of the vesting of his estate in his trustee by virtue of section 33 of the Bankruptcy (Scotland) Act 1985 (as amended) (“the Act”).  Since the date of his sequestration (including when the action was raised), therefore, the pursuer has had no title to the Subjects and no title to pursue this action seeking orders in relation to those Subjects.  (The second defenders took a subsidiary point, to the effect that even if the pursuer could cure any want of title to sue by obtaining the consent of his trustee, that could not operate retrospectively to cure the deficiency in the present action.)

[10]      In relation to a general submission on title to sue, the second defenders developed this as follows.  The requirements of title and interest to sue are distinct and independent requirements to be treated separately:  Maxwell, The Practice of the Court of Session, page 147.  To have title to sue requires a “formal legal right”:  Ibid, page 147.  It entails “some legal relation which gives [the pursuer] some right which the person against whom he raises the action either infringes or denies”:  D and J Nicol v Dundee Harbour Trustees 1915 SC (HL) 7 at 12.  To have interest to sue requires “some benefit from asserting the right or preventing its infringement”:  Maxwell, page 150.  It requires that the action has “some intelligible purpose to serve”:  Agnew v Laughlan 1948 SC 656 at 659.

[11]      The second defenders’ principal submission was in respect of the absence of title to sue of a bankrupt during the currency of his sequestration.  A sequestrated person has no title to pursue a claim unless his trustee abandons the right to do so.  The general principle and its rationale were, it was argued, set out by Lord McCluksey in Dickson v United Dominions Trust Ltd 1988 SLT 19 at 22F:

“the bankrupt cannot be allowed to litigate in such a way that he competes with the creditors, or the trustee as representing them, for any part of the assets sequestrated; and accordingly where such a competition exists or may exist the bankrupt will have no title to sue”.

 

[12]      The second defenders stressed that their principal submissions in support of their plea of no title to sue were essentially predicated upon this dictum of Lord McCluskey in Dickson.  Reference was also made to the three cases there referred to, of Grindall v John Mitchell (Grangemouth) Limited  1984 SLT 335, Fleming v Walker’s Trustees (1876) 4 R 112 and Whyte v Forbes  (1890) 17 R 895, but the basis of the second defenders’ challenge was the dictum quoted above.  In Grindall, the pursuer was an undischarged bankrupt who raised an action for patrimonial loss arising out of a road traffic accident.  Lord Cowie held that the pursuer’s claim in that case was irrelevant in the absence of averments that the pursuer-bankrupt’s trustee and creditors had abandoned that claim.  Fleming also concerned an action by a bankrupt in respect of certain property.  The defenders in that case also tabled a plea of no title to sue.  However, in that case, the trustee had called a meeting of the creditors and a resolution had been passed abandoning their claim to that property.  I was referred to the observation of Lord President Inglis in that case (at page 113) to the effect that “[t]he sole question is, whether there is sufficient evidence that this claim has been abandoned”.  In the light of the evidence (which was considered to instruct abandonment by the trustee and the creditors), the defenders’ plea was repelled.  The facts of Whyte were a little more involved.  The pursuer-bankrupt (Whyte) had been sequestrated.  He was subsequently discharged, as, eventually, was his trustee.  Whyte then raised an action with view to challenging articles of roup and a disposition under which part of his heritable estate had been sold by his trustee some years before.  Whyte’s sequestration was revived and his trustee re‑appointed.  The defenders’ plea of no title to sue was upheld, a view Lord Shand reached “without difficulty”.  In reaching that view, Lord Shand also stated (at page 901) that:

“It was plain that this action is not pursued in favour of the creditors. It is…..hostile to creditors. The right is to be taken up as having been abandoned by creditors….I shall deal with it as one raised on the bankrupt’s own interest, claiming an abandoned subject. …..I am… clearly of the opinion that the pursuer has neither title nor interest to sue this action. Of course the basis of the action, as I am now considering it, is that the trustees and creditors have abandoned their right. I am at a loss to see how they can be said to have abandoned anything. …They turned the estate into money and divided the proceeds. They realised it, conveyed it to the purchasers and distributed the price. It is an utter confusion to say that the pursuer is taking up an abandoned right. On the contrary, he is seeking to cut down a great deal that the trustee and creditors have done with the estate which they acquired. I do not see how it is possible for Mr. Whyte to interfere with what has been done. The property became his creditors’ property, and he was divested of all right to it.”

 

[13]      In Dickson, Lord McCluskey was disinclined to adopt the conclusion of Lord Cowie in Grindall, or to hold that the ratio in Fleming was to the effect that the bankrupt had to demonstrate that the trustee had abandoned his claim.  Rather, the second defenders in the case before me were anxious to point out Lord McCluskey’s view, that “no such rule is established” in Fleming.  Lord McCluskey stated: 

“Indeed, the bankrupt was held to be entitled to sue so the case is, in my opinion, authority for the obverse rule, namely that, if the trustee for the creditor abandons any right to pursue the claim, the bankrupt is entitled to pursue it”.

 

After reviewing the facts in Whyte (albeit the reference there to the sequestration having been “rescinded” must be a misprint for it having been “revived”), Lord McCluskey concluded that that case was authority for the proposition that “the bankrupt cannot pursue a claim which the trustee has obviously not abandoned”:  page 22.  It is after his review of these cases that Lord McCluksey identifies the “principle” lying behind these cases and which does not permit a bankrupt “to litigate in such a way that he competes with the creditors, or the trustees as representing them, for any part of the assets sequestrated….”

[14]      Furthermore, it was argued that the present case is not the exceptional case (as in Dickson) where the pursuer is seeking “to reduce the very decree that set in train the sequence of events which led to [his] sequestration”:  Dickson at page 22H.  In raising this action, it was submitted that it was clear that the pursuer is competing with the creditors and the trustee for the Subjects.  Reference was made to Thomson v Yorkshire Building Society 1994 SCLR 1014, as an illustration of just such a competition.  In any event, the pursuer himself avers that if this action is successful he intends to negotiate to purchase any interest that the trustee has in the Subjects.  It was argued that that averment makes clear that a competition, or potential competition, by the pursuer with his creditors does exist, as contemplated in Dickson.

[15]      The pursuer would have title to sue if the trustee had abandoned the right to do so: Dickson at 22D-F.  However, any such abandonment would, it was argued, have had to have taken place before the action was raised.  It could not operate retrospectively. Reliance was placed on Bentley v Macfarlane 1964 SC 76, although I was not referred to any particular passage in that case.  The pursuer makes no averment that the trustee consented to his raising the action before it was raised.  In the absence of such an averment, it was argued, he cannot establish that he has title to sue.

[16]      The cases of Thomson v Yorkshire Building society 1994 SCLR 1014 and Nicol v Nine Regions Ltd t/a Log Book Loans 2008 SLT (Sh Ct) 123 were said to illustrate that the case of Dickson had been subsequently followed, or to provide a case which was said on its facts to be similar to those in the instant case (e.g. Thomson).

[17]      The second defenders then turned to consider the pursuer’s pleadings.  The pursuer’s recent minute of amendment inserted a series of averments of what are said to be a “number of reasons” why the pursuer has title to sue:

    the fact that the pursuer is a party to the standard security obtained by fraud without his consent;

    the fact that the pursuer was a named defender in the sheriff court decree and is said to have had title to defend the sheriff court proceedings;

    the fact that he occupies the Subjects with his children as their family home and could not be removed by the trustee without a court decree; and

    the fact that he intends to negotiate to purchase the trustee’s interest in the Subjects.

[18]      It was argued that none of these facts establish a legal relation between the pursuer and the Subjects such as is required by D and J Nicol.  They do not address the second defenders’ point that the pursuer’s title to the Subjects passed to his trustee when he was sequestrated. 

[19]      The facts averred by the pursuer may be relevant to interest to sue.  While it was not conceded in the second defenders’ note of argument, in the debate before me the second defenders accepted that the pursuer had averred sufficient to establish an ”interest” to sue.  The pursuer’s averments may show that the pursuer has some benefit to obtain from the action ‑ that there is an “intelligible purpose” to it.  But even if they do, it was argued that that is a distinct question from the question of his title to sue.  He has not averred sufficient to demonstrate any title.  The second defender’s eleventh plea-in-law therefore fell to be sustained and this action dismissed.

 

The pursuer’s reply
[20]      The pursuer submits that the second defenders’ eleventh plea-in-law should be repelled, and a proof before answer allowed on all other matters.

[21]      The pursuer contends that he has title to sue in respect of all of the matters for which he has conclusions (as set out in paragraph [4], above.)  The pursuer accepted that he was sequestrated.  He accepted that this can affect his title to sue in respect of certain matters.  He also accepted that his proprietary title in the Subjects has vested in his trustee.  However, he does not accept that his sequestration precludes him challenging a standard security which was fraudulently obtained.

[22]      The pursuer began by referring to the following facts.  The pursuer is purportedly a party to the standard security.  The standard security was obtained, he asserts, by fraudulent means and without his knowledge.  The second defender raised sheriff court proceedings qua standard security holder against the pursuer for ejection from the Subjects.  The pursuer was unaware of these proceedings until after the decree passed against him.  The pursuer is a named defender in the sheriff court decree.  The pursuer currently occupies the Subjects with his three children.  But for the standard security and the decree, there could be no removal of the pursuer except by the trustee.  The trustee in sequestration has taken no steps to remove the pursuer or his children from the family home.  It is a family home for the purposes of section 40 of the 1985 Act.  An action on behalf of the trustee in sequestration and a court decree would be required in order to remove the pursuer and his family from the Subjects.  In the event that the orders sought by the pursuer were not granted, the pursuer and his family would be removed from their family home as a result of a forged standard security about which they had no knowledge until November 2011.  In any event, removal from their family home is not otherwise guaranteed.  In the event that the pursuer succeeds in this action, he intends to negotiate the purchase of any interest that the trustee has in the Subjects.  The sheriff court decree and standard security are preventing him from doing so.

[23]      Furthermore, it was argued that the standard security survives sequestration.  In accordance with section 33 and 55(3) of the Act, the standard security is unaffected by the pursuer’s sequestration.  The second defenders, as secured creditors, can prevent the trustee dealing with the property unless the trustee discharges the standard security in its entirety.  If both the pursuer and the trustee are discharged, the second defenders’ standard security remains and they can seek possession.

[24]      The pursuer outlined his legal submission as follows:

1)         The pursuer’s action is an action of reduction.  It is equivalent to an action of declarator.  If that is correct, the proper approach to title to sue in respect of such a remedy requires consideration of whether the questions raised are real and not theoretical;  whether the pursuer has a genuine interest to obtain the answer;  and whether the pursuer has secured the proper contradictors, namely, with a true interest to oppose the declarator or reduction sought.

2)         In any event, a person who is in possession of property has a right to challenge the right of the person who seeks to eject him;  and

3)         Even if the second defenders’ approach to title to sue is correct, that principle is based on a competition between the sequestrated person and his creditors.  The pursuer’s present action did not involve a competition with his creditors.  Accordingly, the pursuer has title to sue.

[25]      In considering title to sue it was argued that:  (i) a bankrupt retains the right to sue in relation to matters which are personal to him (e.g. such as a claim for solatium:  Muir’s Trs. v Braidwood 1958 SC 169, pages 174 and 175);  and (ii) the nature of the remedy sought can impact upon the proper approach to title to sue.  The pursuer developed these points.

[26]      In relation to (i), the pursuer is a purported party to the standard security.  The standard security sits independently from and survives sequestration.  It remains enforceable against the pursuer as an individual.  As such, it is “personal” to the pursuer.  In the circumstances, the pursuer retains title to sue.

[27]      Separately, in relation to (ii), the principal order that the pursuer seeks is reduction of the standard security.  The remaining orders flow from this.  In particular, the second defender would not have been entitled to the decree in the absence of a valid standard security.  The basis for seeking reduction is that the standard security is invalid due to forgery.  The argument was further developed as follows:  reduction can be viewed as a negative declarator:  see Walker, Civil Remedies (1974) at page 138 and 145.  For the purposes of considering title to sue, the remedy of reduction can and should be treated as comparable to an action of declarator.  In this action, the pursuer could have sought a declarator that the standard security was invalid.  If granted, such a declarator would entitle the pursuer to reduction.  The actions of declarator and reduction (particularly based on invalidity) are so closely connected, so the argument went, that the test for title to sue is and should be the same.

[28]      In actions of declarator, title and interest to sue should be treated with a degree of elasticity:  per Lord Dunedin in North British Railway Company v Birrells Trustees 1918 SC (HL) 33 at page 47.  Reference was also made to further observations by Lord Dunedin a few years later, in the case of Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd 1921 2 AC 438 at 448 when he said:

“Your Lordships are aware that the action of declarator has existed for hundreds of years in Scotland.  It was praised, with envy, by Lord Broughan in your Lordships’ House, in the case of Earl of Mansfield v Stewart.  Long before the genesis of Order xxv.1.5 the rules that have been elucidated by a long course of decision in the Scottish Courts may be summarised thus:  the question must be a real and not theoretical question;  the person raising it must have a real interest to raise it;  he must be able to secure a proper contradictor, that is to say, someone present existing who has - true interest - to oppose the delcarators sought.”

 

On the basis of this passage it was argued that sufficient interest may be established for a declarator in circumstances where the questions raised are real, not theoretical;  where the pursuer has a genuine interest to obtain answers; and where he has secured proper contradictors, namely those with a true interest to oppose the declarations sought, then the pursuer has title and interest to sue.  In addition to the dicta of Lord Dunedin in these two cases, reference was also made to Hill of Rubislaw (Q Seven) Limited v Rubislaw Quarry Aberdeen Limited & Ors [2013] CSOH 131 at para 28.

[29]      These circumstances were, it was argued, all present in the current action.  The pursuer’s action raises questions that are separate from the sequestration, namely the validity of the purported security in favour of the second defenders.  The pursuer has a genuine interest in obtaining an answer to this question because:  (i) it impacts on the ability of both the pursuer and his children to possess the Subjects;  (ii) the existence of the purported standard security removes the statutory protections otherwise available to the pursuer and his family under section 40 of the Act 1985;  and (iii) it impacts upon the pursuer’s ability to negotiate with the trustee in sequestration.  The second defenders are the proper contradictors, being the party claiming to hold a valid standard security from which the decree and charge for removing stem.  The pursuer has a legitimate and manifest interest in obtaining the orders sought.  In those circumstances he has title to sue:  Fleming v McLagan (1879) 6R 588; Hill of Rubislaw (Q Seven) Limited v Rubislaw Quarry Aberdeen Limited & Ors [2013] CSOH 131.  Extensive reference was made, in particular, to Hill of Rubislaw at paragraphs 27, 28  to 33, 35 and 39.  It was argued that that case demonstrated that it was not necessary in all cases of declarator that the pursuer need to demonstrate a “legal relation” such as contended for by the second defenders.

[30]      Further, it was argued, there was no reason in principle why the dicta concerning the title to sue in actions of declarator should not also be applicable to actions of reduction.  Here, the second defenders had conceded that the pursuer had “interest”; that was enough.

[31]      In relation to his second contention, it was argued that a person in possession of heritable subjects has a right to challenge the title of those who seek to eject him.  This was a distinct argument from title to sue.  In support of this the pursuer referred to the unreported case of Robert Bain v Andrew Robert Bain and Others [2006] CSOH 198 at paragraphs 3 to 7, decided by Lord Glennie.  By reason of the vesting of his property in his trustee upon sequestration, the purser no longer owned any part of the Subjects. This was said to be similar to the position of the pursuer in Bain.  However, the pursuer had rights of possession as conferred by section 40 of the Act.  On this basis, he was entitled to challenge the title of any person who seeks to disturb his possession.  If he has title to challenge the sheriff court decree, he has title to challenge the standard security because they are so intertwined.

[32]      In relation to the question of competition, it was argued that the pursuer’s interests differed from those of the trustee.  The pursuer’s interest was “personal” to him:  he could lose his house.  He should be allowed the benefit of section 40 of the Act.  His challenge was to the status of the second defenders qua secured creditors in respect of his one‑half pro indiviso share of the Subjects.

[33]      With respect to the cases cited by the second defenders, such as D&J Nicol, the pursuer was a party to the purported standard security and to the decree.  He therefore had title and interest to challenge them.  His title to do so is unaffected by the sequestration.  In relation to Dickson, while accepting that the analysis about competition is the correct one, the pursuer’s case did not involve any competition with the interests of the creditors or trustee.  The pursuer’s action is not asserting a right to any asset that forms part of his sequestrated estate.  His challenge is to the status of the second defenders qua secured creditors.  Further, it was argued that the pursuer’s stated intention of negotiating with the trustee does not constitute impermissible competition such as to fall foul of the dictum of Lord McCluskey in Dickson.

[34]      In regard to the case of Thomson, which the second defenders relied on as an illustration of Dickson as applied to circumstances said to be similar to those in the instant case, the pursuer’s position was that if the case of Thomson  was against him, then it was not binding on this court.  It was wrongly decided.  In Thomson the pursuer in that case had granted a standard security to heritable creditors.  Thereafter he had defaulted in his obligations.  He had also been sequestrated.  The heritable creditors had exercised their rights under section 20 of the Conveyancing and Feudal Reform (Scotland) Act 1970 (“the 1970 Act”) and had obtained a decree of ejection against the pursuer in Thomson.  The pursuer in Thomson raised a separate action and sought to interdict his heritable creditors from enforcing the decree of ejection.  He complained of the delay by the heritable creditors in enforcing their decree.  The pursuer in Thomson also contended that a greater sum would be realised from the sale of his property if it were sold by agreement while it was still occupied and furnished rather than if it were sold in a forced sale with vacant possession.  The trustee in sequestration declined to consent to the pursuer bankrupt’s proposed action.  The sheriff principal (C.G.B. Nicholson QC) refused the pursuer’s appeal against the decision of the sheriff at first instance to refuse warrant to cite on the basis that the pursuer had no title to sue.  The pursuer in this case said that the sheriff principal had erred in Thomson, at page 1017 B to C, where he had concluded that the  proposed action by the bankrupt in that case “may compete” with the trustee or creditors.  In any event, it was said that that case was distinguishable from the present one on the basis that, in contrast to that case, here there was a challenge to the fundamental right of the creditors to rely on the standard security and which had not been challenged in Thomson.  It could not be the case that the sequestration of the pursuer precluded his challenge to a document (the standard security) arising as a consequence of a forgery.  The second defenders’ eleventh plea-in-law should be repelled and a proof before answer allowed.

 

The second defenders’ reply
[35]      In a response to the pursuer’s arguments, the second defenders rejected the pursuer’s contention that a declarator was so analogous to an action of reduction that the dicta relevant to the interest required for the  former action sufficed for the purposes of a reduction.  In any event, the factual circumstances of the cases cited by the pursuer were all far removed from those in the instant case.  None concerned a sequestrated person’s title to sue.  The case of Thomson, and the analysis there of competition, was correctly decided.  In any event, the trustee had not consented to this action by the pursuer.  Unless he did so, there was a competition.

 

Further reply by the pursuer
[36]      This last point made by the second defenders, now founding on the absence of consent by the trustee, involved the broadening out of the basis of challenge by the second defenders to the pursuer’s title to sue.  The pursuer asked to respond to this and did so as follows:  whether or not there is competition cannot be equated to the question of whether or not a trustee in sequestration consents.  The question of whether there is any competition is an objective test:  Does the pursuer’s proposed action compete with the creditors?  That is not determined by the trustee.  He does not get to choose in what manner to restrict other people’s rights.

 

Discussion and decision

Preliminary:  What is the extent of the trustee’s or creditors’ interest in the Subjects that is derived from the pursuer?

[37]      On Record, the pursuer seeks reduction of the whole of the standard security.  The ground of reduction is forgery and which, he contended under reference to the case of Chalmers v Chalmers  2015 SLT 795 at para [23], meant that the standard security was a nullity.  It was void.

[38]      While forgery or fraud is no doubt a valid ground of reduction, the pursuer’s challenge extends too far.  In this case, the pursuer owned a one‑half pro indiviso share of the Subjects in common with his wife.  On the face of it, they each granted a standard security in respect of their respective one‑half pro indiviso shares in the Subjects in favour of the second defenders.  (For present purposes, I leave out of account any argument that might arise if the pursuer and first defender were also guarantors of one another’s indebtedness.)  Leaving aside the pursuer’s allegations of forgery, it is only his one-half share, burdened by the standard security, that vests in the trustee.  The first defender retains title to her own one‑half share.  There is no challenge to her grant of the standard security in respect of her own one‑half share.  There is no basis for reduction of the standard security quoad the first defender’s own one‑half pro indiviso share of the Subjects.  Her grant is not said to be vitiated by any forgery.  Accordingly, only partial reduction of the standard security would be appropriate;  that is, only quoad the pursuer’s one‑half share, a matter which the pursuer’s counsel accepted in the course of his submissions.

 

The general rule that divestiture of title to estate on sequestration precludes title to sue
[39]      In considering the arguments advanced before me at this procedure roll debate, it may assist to recall the purposes for which a bankrupt person’s property vests in his trustee in sequestration and to what use that property is put.  It has long been a feature of Scottish personal insolvency (or bankruptcy), that, generally, the whole estate of the debtor vests in his trustee for the behoof of his creditors.  As it was put by Lord Justice Clerk Inglis (as he then was) in the case of Galbraith v Whitehead (1863) 1 M 644 at page 646, and which also concerned the title to sue of a discharged bankrupt:

“The pursuer’s estates are under sequestration; and if one thing is settled more clearly than another, it is that the effect of sequestration is to vest the trustee in everything belonging to the bankrupt, and to divest the bankrupt to a corresponding extent. It is true that the bankrupt has obtained his discharge. But his estates are still under sequestration, and his personal discharge does not reinvest him, nor touch the trustee’s title”.

 

In the same case, Lord Neaves observed (at pages 646 to 647):

“I should be sorry if it were thought that we failed to recognise the legitimate interest a bankrupt has to see that his debts are fully paid, and his estate full realised. But this [i.e. the case before the court]  is a question of title to sue, and it is out of the question that a debtor of the sequestrated estate should be called into Court by the bankrupt without the clearest allegation and proof that the claim has been abandoned by the trustee. The right of a bankrupt under sequestration is to the surplus of the estate, and he may get a title to sue a particular debt, by retrocession or by dereliction.”

 

[40]      Lord Neaves made similar remarks eight years later in the case of Graham v Mackenzie (1871) 9 M 798 at 800, and which also concerned whether a discharged bankrupt had title to sue for recovery of a debt falling under the sequestration:  “A bankrupt has a material interest in his property; the debts are his debts, and the creditors are his creditors. The primary title, however, is in the trustee, and the creditors have extensive powers over the estate, and may discharge and compromise claims, of which the bankrupt cannot complain.  At the same time, a trustee cannot gratuitously discharge a debt, or make a present of it to the debtor.”  In that same case of Graham Lord Justice Clerk Moncrieff acknowledged that there may be a “radical title” in a bankrupt who is sequestrated, although, he said, that it was not necessary in that case to define its extent.  However, he affirmed the rule about general divestiture of a bankrupt on sequestration:  “The divestiture is absolute so far as the object of the sequestration is concerned.  Nothing remains in a bankrupt which can come into competition with the trustees and creditors.”   Accordingly by reason of that divestiture, a bankrupt had no title to sue in relation to the estate now vested in his trustee.

 

Circumstances in which a bankrupt might regain title to sue in respect of property failing within his sequestration
[41]      The passages quoted in paragraphs [38] and [39] above support the general rule that the effect of a sequestration is to divest the bankrupt of his property and so deprive him of title to sue in respect of his estate.  However, that rule is not absolute, as is made clear by the references in the case law to a bankrupt’s “radical title”, or the circumstances in which he might nonetheless be allowed to pursue a claim or an asset (whether formally retrocessed to it (as required by the court in Graham v Mackenzie (1871) 9 M 788)) or not (c.f. Fleming v Walker’s Trustees, cit supra), if the trustee has abandoned the claim or asset in question or, at least, has been exceptionally dilatory in vindicating the asset or claim on behalf of the creditors (per Lord Neaves in Galbraith).  This is a different circumstance from a case where a bankrupt calls his trustee to account for his intromissions, and which is explicable on the basis of the trustee’s fiduciary obligations qua trustee.  

[42]      Indeed, the observations of the court in Galbraith, cit. supra, might be seen as relaxing any formal requirement for retrocession of the bankrupt’s title if the trustee can be shown to have abandoned the asset or claim which the bankrupt wishes to vindicate or pursue.  Subsequent cases have questioned whether abandonment by the trustee must necessarily be shown before a sequestrated person might regain title to sue.  The modern analysis, set out by Lord McCluskey in Dickson, is to consider whether the bankrupt’s proposed action will “compete” with interests of his creditors and trustee.  In Dickson, after reviewing the cases of Grindall, Flemming and Forbes, and certain passages in Wallace’s Law of Bankruptcy in Scotland, Lord McCluskey stated:

“The principle lying behind the statement in Wallace must be that the bankrupt cannot be allowed to litigate in such a way that he competes with the creditors, or the trustee as representing them, for any part of the assets sequestrated; and accordingly where such a competition exists or may exist the bankrupt will have no title to sue. That principle protects both the creditors and the party sued, whose interest is to be protected from the risk of double distress in the form of claims by a bankrupt and by the trustee in sequestration. In any event, Grindall is clearly distinguishable from this case in which the pursuers seek to reduce the very decree that set in train the sequence of events which led to their sequestration in a petition by the very party that obtained the decree now sought to be reduced. It would be strange indeed if U.D.T. could obtain a decree against the Dicksons, use it to sequestrate them, and then use their position as creditors in the sequestration (in respect of that decree) to prevent the Dicksons from seeking its reduction. No other authority was quoted in support of the submission by counsel for the defenders. In this action I am satisfied that, given the trustee's attitude, the pursuers have not lost their title to sue for reduction of the decree which led directly to their sequestration. So I reject this argument.”

 

[43]      I agree with this analysis.  The benefit of this approach is, in my view, to focus on the real issue - whether the bankrupt’s proposed action is detrimental to the interests of his creditors or inimical to the purposes of the sequestration.  It avoids the exploration of what might be an arid or prolonged inquiry as to whether a trustee has been dilatory or can be demonstrated to have abandoned some part of the bankrupt’s estate, where he has not formally done so.

 

The inter-relationship between a trustee’s powers and rights of a secured creditor

[44]      In considering whether there is an impermissible competition between the pursuer and the interests of his creditors and trustee, it may assist to note the respective rights a heritable creditor and trustee may exercise in respect of heritable property of a debtor, now vested in his trustee, but which is subject to a standard security.

[45]      Vesting of a bankrupt’s estate in his trustee is now governed principally by section 31 of the Act.  (Of course, there have been an increasing number of statutory exceptions to that general vesting, but these are not relevant for present purposes.)  The bankrupt’s estate vests in his trustee tantum et tale.  Furthermore, the limitations on vesting set out in section 33(3) of the Act expressly recognise that this is “without prejudice to the right of any secured creditor which is preferable to the rights of the …trustee.”  The Act does not use the phrase “radical right”, but section 51 (which sets out the order of priority in distribution of a bankrupt’s estate) provides for the return of any “surplus” (i.e. after payment of all creditors’ claims, expenses of the sequestration etc. but excluding unclaimed dividends) to the debtor.

[46]      Accordingly, it is not so much that the standard security “survives” the sequestration, as the pursuer’s counsel put it, but that the prior real right in security over heritable property constituted by a standard security is accorded its appropriate ranking.  By virtue of his standard security, a heritable creditor may (subject to the provisions in the 1970 Act) be entitled to exercise a power of sale in respect of the subjects secured.  The standard security holder is under an obligation, imposed by section 25 of the 1970 Act as well as arising under the common law, to secure the best price that can reasonably be obtained.  He is also under an obligation to apply any surplus proceeds in a specified way:  section 27 of the 1970 Act.  In the simple case, where there is no other or postponed security holder and the debtor has been sequestrated, the secured creditor would in the normal course account for any surplus proceeds to his debtor’s trustee in sequestration.  Again, absent any rights created by diligence, those surplus proceeds would fall into the general pool of assets for distribution among the ordinary creditors by the trustee.

[47]      If the secured creditor realises the subjects over which there is a standard security and there is a surplus upon realisation, he must account for that to the trustee.  To the extant that the trustee has an interest in an asset that is subject to a real right in security, it is in respect of any surplus over the creditor’s claim and which then becomes part of the pool available for distribution amongst the body of creditors according to their ranking.

[48]      There are also certain circumstances in which a trustee might exercise a power of sale in relation to subjects that are subject to a standard security:  see section 39(4) of the Act.  In those circumstances, the trustee would be bound first to pay the amount of the secured heritable creditor’s debt.  On doing so, the standard security is discharged and the trustee may then sell the subjects (complying, of course, with other provisions of the Act governing such sales).  Any surplus proceeds would, in the simple case, then form part of the pool of assets from which he would pay ordinary creditors’ claims.  In relation to heritable property subject to a standard security, the holder of that security and the trustee in sequestration each may exercise powers of sale in respect of the security subjects.  Speaking broadly, they exercise those powers independently of the other, so long as the interests of the other are not prejudiced and the other statutory requirements they are subject to are observed.  In the light of this understanding, one would not generally describe the relationship between a trustee and a standard security holder as in competition.

 

What is the “competition” apprehended by the second defenders?
[49]      The second defenders argue that the pursuer’s averment that he wishes to reduce the standard security so as to be able better to ‘negotiate’ with his trustee demonstrates competition with his trustee.  It was contended that the trustee is bound to realise the best price he reasonably can for the assets of the debtor, but that any purchaser is likely to try to secure a purchase of the Subjects as at a low a figure has he can.  In that sense, the interests of a buyer and seller of a piece of heritable property are necessarily adverse.  Here, the buyer and seller would be the pursuer and his trustee.  This, it was argued, was the kind of competition that fell within the dictum of Lord McCluskey in Dickson and was impermissible competition.

[50]      I find it hard to see why the pursuer should be in a different category than a third party seeking to purchase assets from the trustee.  So long as the trustee fulfils his obligations in respect of the realisation of the estate, he is free to sell the debtor’s one‑half share in the Subjects to him, if he offers the best price.  Indeed, it was not unusual in the past for a sequestration to be brought to an end by a general composition contract, whereby the debtor purchased the estate still in the hands of his trustee in exchange for his discharge and his reinvestiture in the estate.  (That is the significance of the reference in the headnote in, for example, Whyte v Forbes, that the pursuer-bankrupt against whom a plea of no title to sue was taken had been discharged but “not upon a composition”, meaning that he had not been reinvested with title to his estate.)

[51]      As noted above, subject to obligations to secure the best price on realisation and to account for any surplus, the powers exercisable by the pursuer’s trustee or by the second defenders as secured creditors in respect of the Subjects and the interests they have in those Subjects, are pursued largely independently of each other.  They are not in competition in respect of this asset.  The rights of secured creditors are respected by the process of sequestration but are, generally, pursued outside that process.  Prima facie therefore, a challenge to the deed by which the second defenders obtained their real right in security does not entail a competition with the pursuer’s trustee or his creditors as a body.  The pursuer is not asserting a proprietary right to the one-half share of the Subjects that is now vested in his trustee.  In another context, the pursuer’s claim would not result in the kind of double distress, or competition, involving two or more claims on the same asset such as to give rise to an action of multiplepoinding.  The pursuer’s challenge is simply a direct action against his creditor, and in the manner in which he wishes to do so is by this action.

[52]      For the foregoing reasons and on the basis of the information presented to me, I do not find that the pursuer’s action involves an impermissible competition with his trustees or creditors in the sense explained by Lord McCluskey in Dickson.  It follows that I repel the second defender’s eleventh plea-in-law. 

[53]      In relation to the decision of Sheriff Principal C.G. B. Nicholson QC in the case of Thomson v Yorkshire Building Society 1994 SCLR 1014, the nature of the bankrupt’s competing action was quite different and distinguishable from the case before me.  So far as the report discloses, the bankrupt in that case had no substantive or fundamental ground of challenge to the secured creditor’s exercise of his powers of sale under the standard security.  At best, the pursuer’s proposed action in that case was purely negative: to prevent ejection and only on the somewhat tenuous basis that the standard security holder had delayed in enforcing the decree in his favour.  In any event, the court in Thomson did not have the benefit of the fuller argument presented to me.

 

What would be the effect of the pursuer’s reduction of the standard security granted quoad his one-half share of the Subjects?

 

[54]      Another way to test whether or not there is impermissible competition, as contended for by the second defenders, is to consider the effect of the purser’s action for partial reduction, if it were to succeed.

[55]      One of the, perhaps unusual, features in this case is that the pursuer is not seeking to vindicate or otherwise assert a claim in respect of an asset that has vested in his trustee.  He accepts that the Subjects (or, more properly, his one‑half share) has vested in his trustee.  Rather, the object of the pursuer’s first conclusion is to reduce the standard security over the Subjects.  (As noted above, this should be quoad the purported grant of it over his one-half share of the Subjects.)  The pursuer’s counsel explains that the pursuer perceives it will be easier to negotiate with the second defenders for the purchase of the Subjects if he has obtained decree of reduction (or, more properly, partial reduction) of the standard security.

[56]      If that partial reduction were granted, the rights of the second defenders qua secured creditors in respect of the Subjects would be commensurately cut down.  This would not, of course, reduce the amount of their debt per se.  The second defenders would continue to be secured creditors in respect of the first defender’s own one-half share.  While they would no longer be secured creditors in respect of the pursuer’s one‑half share of the Subjects, the second defenders would simply rank as ordinary creditors in respect of the pursuer’s outstanding indebtedness to them.

[57]      The overall effect, therefore, would not to be to reduce the total claim of the second defenders, but to change their “status” (as the pursuer’s counsel put it) to that of an unsecured creditor in respect of the pursuer’s debt that had been secured by the standard security over the Subjects.  The pursuer’s one‑half share of the Subjects which had vested in the trustee would become available to his ordinary creditors (including the second defenders).  On one view, the pursuer’s action could be seen as beneficial to the body of ordinary creditors, even if detrimental to the interests of the second defenders qua secured creditors.  The pursuer is not competing with the trustee or creditors, in the sense of seeking to claim an asset for himself or otherwise diminishing the assets available for distribution by the trustee for the behoof of his creditors.  The general pool of assets from which the ordinary creditors will be paid is commensurately increased by the amount which is no longer secured or would have been paid to the second defenders under the now partially reduced standard security in respect of the pursuer’s one-half share of the Subjects.

 

Is it sufficient for the pursuer to demonstrate an ‘interest’?
[58]      In the light of my conclusion that there is no impermissible competition, the pursuer’s arguments based on his equiperation of declarator with reduction does not, strictly, arise.  In any event, I was not presented with full submissions and, accordingly, I will address this argument of the pursuer only briefly.

[59]      There were several steps to the pursuer’s argument: the pursuer cited several dicta in cases of declarator, the import of which was to emphasize the latitude of what the courts recognised as constituting sufficient “interest” in actions of declarator.  Next, it was argued a reduction was just a reverse of a declarator.  On that basis, it was then argued that the same latitude afforded to ascertainment of “interest” for the purposes of a declarator should be extended to actions of reduction.  In effect this was to obliterate any need to establish “title” for the purposes of an action of reduction. An outcome the pursuer’s counsel fairly acknowledged.

[60]      The second defenders simply rejected the pursuer’s argument but did not develop their submission or refer to any other cases.

[61]      In this case, the pursuer seeks a declarator in respect of a standard security.  That remedy is, in my view, inapt.  A standard security is a deed which creates binding legal rights and obligations.  It is recorded or registered on a public register.  A declarator would itself be insufficient as regards the abrogation of secured creditor’s rights created by such a deed.  Generally, a deed is valid until reduced.  For an action of reduction the pursuer must establish title and interest.  There are many authorities that vouch this although none were cited to me.  For present purposes it suffices to note the case of McLeod v Cedar Holdings Ltd 1989 SLT 620.  This case also entailed reduction of a standard security on the basis that the pursuer’s signature had been forged by her spouse.  It is authority for the proposition that partial reduction in such circumstances in competent.  The Second Division held that a declarator was insufficient and reduction was necessary.

[62]      The pursuer seeks to conflate the nature of the remedy of declarator with that of reduction, with a view to applying the generous definition of “interest” ‑ in seeming disregard of the need to establish any title to sue.  In my view, the pursuer’s argument is misconceived.  It fails to appreciate the differences between the remedies of declarator and reduction.  The former may suffice where there is the desire to clarify a right that is uncertain in extent or existence, but where nothing is demanded of any contradictor.  By contrast, reduction is a corrective remedy.  The effect of reduction is to deprive the deed or decree under reduction of legal force and effect.  A party seeking such a remedy must demonstrate title and interest.   In my view, those requirements cannot be elided in the way the pursuer’s counsel sought to do.

 

Ancillary arguments

[63]      It is not necessary to deal in any detail with other ancillary arguments presented.  There is no suggestion that the pursuer will seek the consent of his trustee with a view to curing any want of title.  (In view of my determination of the principal issue, consent by the trustee in respect of a non-competing action of the pursuer would be otiose.)  The pursuer made no substantial reply to the second defender’s passing reference to Bentley, cit supra.  The facts of that case were far removed from those in the present one and, in the absence of argument, I express no view as to whether it is applicable to the facts in this case.  Likewise, the second defenders offered no substantive response to the pursuer’s argument as regards any right arising as possessor of the Subjects.  Given Lord Glennie’s observations in paragraph [7] of Bain, cit supra, that the pursuer-possessor is entitled to come to court to show that the title of the person seeking to evict him is “no better than his own”, I am doubtful as to whether any right as a possessor extends to a challenge to one whose title derives ostensibly from a grant by the possessor.  I reserve my opinion as to whether Bain falls to be applied to the facts in this case, and which are very different.

[64]      It remains for me to thank counsel for their concise and ably presented submissions.