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Cite as: [2004] ScotSC 9

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JUDGEMENT OF

Sheriff C.A.L. Scott

in the cause

STANDARD LIFE TRUSTEE COMPANY LTD & OTHERS v THE PERMANENT TRUSTEE ON THE SEQUESTRATED ESTATE OF CHARLES ANTHONY CRIMIN S9673

GLASGOW, 5 February 2004.

The Sheriff, having resumed consideration of the cause, sustains the respondent's first plea-in-law insofar as directed towards the competency of the minuters' second crave and dismisses the minute; finds no expenses due to or by any party from the date of citation until 13 January 2003; finds the respondent liable to the minuters in the expenses of the minute as occasioned between 14 January 2003 and 14 May 2003; thereafter finds the minuters liable to the respondent in those expenses occasioned from 14 May 2003 to date, under exception of the hearing assigned for 6 October 2003 in respect of which no award of expenses is made; sanctions the employment of junior counsel in respect of the diet of debate on 19 January 2004; allows accounts of expenses to be given in and remits the same when lodged to the Auditor of Court to tax and to report thereon.

Sheriff

Note

The minuters in this summary application are the trustees of the Charles Crimin (Electrical Contractors) Ltd Pension Scheme. The respondent is the permanent trustee on the sequestrated estate of Charles Anthony Crimin. The minute is presented in terms of Section 31(6) of the Bankruptcy (Scotland) Act 1985 which provides for the making of an order excluding certain assets from vesting in the permanent trustee on a sequestrated estate. The first crave in the minute seeks declarator along those lines in respect of the sum of £14,424.17 which, at the time of sequestration, had been held in the name of the pension fund. For the purposes of the debate, no issue was taken in respect of the first crave and, indeed, the court had earlier pronounced an interlocutor giving effect to that crave on 14 May 2003.

However, the respondent does take issue with the competency of the second crave in the minute albeit that his first plea-in-law to the competency appears to relate to a previous feature of the case. In any event, no issue was taken regarding the form of that plea and I didn't understand counsel for the minuters to suggest that anything other than fair notice of the point had been given. The second crave seeks to have the respondent ordained "to restore the sum of £14,424.17" to the pension scheme "...with interest thereon at 8 per cent per annum from 26 August 1996 until restoration."

I was advised that, whilst no concession was made regarding the competency of any order sought in terms of the second crave, for practical purposes, the sum referred to had, in fact, been restored to the minuters. Nevertheless, parties were still at odds as to the minuters' claim for interest at the judicial rate.

Respondent's submissions

In his opening remarks, Mr Deutsch, for the respondent, stressed that the craves in the minute were directed against the respondent qua permanent trustee. Neither crave was directed against the trustee in any personal capacity.

Mr Deutsch submitted that the second crave in the minute was incompetent, firstly, because it invited the court to exceed its authority in terms of Section 31(6) of the 1985 Act and, secondly, in effect, because it sought to give the minuters a preference as against the general body of creditors in the sequestration.

Moreover, it was argued that even if it were competent to award interest, the ordinary rules should apply. That being so, interest would not be payable any earlier than 23 October 2002. Before that date, no valid judicial demand had been made to constitute an entitlement to interest.

Mr Deutsch conceded that the minuters had an entitlement to interest subsequent to 23 October 2002 but that, in so far as they had such a right, they ought to be treated as ordinary creditors in the sequestration and, therefore, required to rank as such in accordance with the usual rules.

It was pointed out that the permanent trustee was an officer of the court and that he would be expected to deal with the interest aspect of the minuters' claim in what Mr Deutsch described as the "usual way" without the interference of the court.

Reference was made to the specific terms of Section 31(6) of the 1985 Act. It was submitted that the sub-section did not go so far as to entitle the court to issue an instruction to the permanent trustee to pay over the sum of money involved. Additionally, the sub-section made no provision as to the payment of interest in respect of any amount which fell to be excluded from vesting. Mr Deutsch maintained that there was nothing to be found within the terms of sub-section (6) which suggested that any such power regarding the payment of interest should be implied. In passing, he also advised the court that the relevant regulations prorogated by the Secretary of State were silent on the matter.

The court was invited to reflect upon whether, in principle, such a claim for the payment of interest should be treated any differently from a claim for interest emanating from any other ordinary creditor. Mr Deutsch explained that the minuters were not preferred creditors but that parties, such as the minuters, finding themselves in a similar situation, had come to be viewed by the courts as preferred creditors. Reference was made to Professor McBryde's work on Bankruptcy at paragraph 9-191. Mr Deutsch asserted that the minuters had what he characterised as a "radical preference" ahead of all others but that any such preference was restricted to the fund excluded from vesting. Reference was also made to paragraph 16-13 in McBryde.

In the case of James Thomson & Co Ltd v Friese-Greene's Trustee 1944 SC 336 an attempt had been made to effect diligence against the bankrupt's trustee after the date of sequestration. Mr Deutsch contended that there was an analogy to be drawn between that situation and the circumstances presently before the court. In other words, the court was being invited to issue an instruction to make payment of a sum of money out of the sequestrated estate. Mr Deutsch founded upon passages within the opinion of the Lord President at pages 341 and 343.

In the event that the court did not find favour with the respondent's principal argument to the effect that the claim for interest was incompetent, there was still an issue as to the circumstances in which an entitlement to interest arose.

Mr Deutsch drew the court's attention to paragraph 11.7 in Wilson on Debt (2^nd Edn) and argued that, in the present context, one could only be dealing with a claim for interest following upon a judicial demand. Accordingly, the court was being called upon to determine the stage at which a valid judicial demand had been made. The respondent maintained that no such demand had been effected until 23 October 2002. In that regard, the minute, in its original form, had been brought by Charles Anthony Crimin as an individual. Thereafter, a minute of amendment lodged in October of 2002 brought about a complete change in the legal persona of the party or parties responsible for the presentation of the minute. That change had arisen through earlier arguments advanced on behalf of the respondent to the effect that Mr Crimin, qua individual had no title to bring such an application before the court. It was submitted that a demand for payment made by an individual bereft of title to sue could never amount to a valid judicial demand. In the present circumstances, a valid judicial demand only arose when the legal persona of the minuters had been corrected.

In support of the contention that interest could not run prior to a claim being incorporated in the pleadings, Mr Deutsch referred to the case of H.M.V. Fields Properties Ltd v Skirt 'n' Slack Centre of London Ltd 1987 SLT 2 and, in particular, highlighted a passage in Lord Clyde's opinion at page 7.

On any view of matters, Mr Deutsch maintained that it was wholly inappropriate for the minuters to seek interest from 26 August 1996 and that, if anything, interest ran from no earlier than the date of citation which was in June of 2000.

Minuters' submissions

Counsel for the minuters argued that the minute fell squarely within the terms of Section 31(6) of the 1985 Act and that the court should keep that in mind when reflecting upon the wider issues in the case.

It was submitted that the minuters were not claiming as creditors in the debtor's sequestration and that the practical circumstances in this particular sequestration must be considered. As at August of 1996, the permanent trustee had actually acquired the pension fund and had caused it to be inmixed with the bankrupt's general assets. In such circumstances, counsel maintained that the second crave became a necessary, relevant and competent feature of the minute.

Reference was made to Section 43 of the 1985 Act regarding the obligation incumbent upon a permanent trustee to bank money recovered. Counsel further explained that the minuters were simply seeking restoration of what happened to be an interest bearing asset. The pension fund was an interest bearing asset which ought to be restored to an extent which was consistent with that characteristic.

In relation to the form of that part of the second crave dealing with interest, counsel submitted that when the minute was lodged, the minuters had no knowledge regarding the rate or rates which might have been applied to the fund for the purposes of the generation of interest. That being so, he argued that it was, prima facie, appropriate to crave interest at the judicial rate.

In the case of Trans Barwil Agencies (UK) Ltd v John S Braid & Co Ltd (No 2) 1990 SLT 182, Lord McCluskey held that where one party had wrongfully withheld monies due to another, interest was payable from the date on which a formal judicial demand for payment of the monies had been made. Furthermore, it was held that equitable considerations required that the rate of interest allowed should vary to reflect the cost of money in the market at different times as reflected by the judicial rate and interest was allowed on the whole sum at the judicial rate prevailing at the material times.

Counsel submitted that, in the present case, the permanent trustee had wrongfully taken money from the pension fund trustees. He suggested that the circumstances gave rise to what he described as a "presumption" to the effect that the permanent trustee required to disprove that the judicial rate was the appropriate rate.

Counsel reiterated that the minuters were not creditors and that in seeking to invoke the terms of Section 31(6) they were merely endeavouring to recover an asset which ought never to have fallen into the sequestrated estate. It should never have been exposed to the body of creditors in that way.

Quite properly, counsel drew the court's attention to the case of McArthur v McArthur's Trustee 1997 SLT 926 in which the sheriff at Falkirk, at first instance, had, inter alia, been called upon to consider a similar note in a sequestration process. As well as seeking declarator in terms of Section 31(6) of the 1985 Act, the note craved decree against the permanent trustee for payment to the noter of the sums to be excluded from vesting with interest. After a debate in the Sheriff Court, the sheriff made an order for declarator but refused the second crave of the note (for payment with interest) as incompetent.

The note appended to the sheriff's interlocutor explained that having found no provision in the Bankruptcy Act authorising "a claim for payment of money in terms of a sequestration process" he concluded that the second crave seeking decree for such payment was incompetent, although it seems that the sheriff was not addressed in relation to this particular matter.

It was pointed out that whilst the minuters' first crave was underpinned by their second plea-in-law, the second crave was, itself, supported by the third plea-in-law. That plea asserted that the respondent had "wrongfully intromitted" with the funds held for and on behalf of the pension scheme. No particular legal significance was to be attached to the use of the word "wrongfully". Counsel sought to define that word by reference to circumstances in which the monies involved were "not the trustees' to take". Reference was made to the case of Carmichael v Caledonian Railway Company (1870) 8 M (HL) 119. It was contended that the minuters only required to establish that the money ought not to have been taken and placed along with the other funds available to the sequestrated estate. If that were established then it fell to be characterised as wrongful.

In Tibbert v McColl 1994 SLT 1227, it was held that the trustees under a pension scheme were in breach of trust when they erroneously paid an employee's early retirement cheque into the bank account of the employers. Whilst the pursuer's claim was not one for damages, the court was satisfied that a claim for interest on the amount involved could be made under common law. Accordingly, by way of concession, interest was held payable from the date of citation at the judicial rate.

Counsel for the minuters stressed that the monies involved in the present proceedings did not fall to be regarded as a debt. Accordingly, the question of a judicial demand for payment having been made was not relevant. Counsel maintained that the starting point for the running of interest was 26 August 1996 and that, if he were wrong about that, it had to be the date of citation. The respondent's approach which was founded upon the absence of a valid judicial demand was illegitimate.

Respondent's reply

Having been afforded a right of reply on behalf of the respondent, Mr Deutsch submitted that the minuters were basing their argument on the false premise that they were seeking to recover something other than a debt. In real terms, the interest sought was very plainly a debt. At paragraph 1.1 in Wilson on Debt, the following definition appeared:-

"Debts are merely rights to demand payment of money at a stipulated time".

In the present case, the debt which the minuters seek to recover would arise once the fund/property had been excluded from vesting. Any interest payment would emanate from the fund which the trustee was holding and, therefore, it had to amount to a claim on the estate. In the context of the interest sought, it was impossible for the minuters to point to any particular sum or sums within the estate and to assert that they were the rightful owners.

Mr Deutsch reiterated that a claim for judicial interest had to be a claim on the sequestrated estate just like any other claim. What was significant was that it would not be met by funds which were once the property of the minuters. The interest payment sought was supplementary in nature. If interest were granted to the minuters at the judicial rate, then funds which should have fallen to the general body of creditors would be diverted elsewhere. It amounted to a preference at the creditors' expense.

In relation to counsel's submission regarding the minuters' lack of knowledge in connection with the applicable interest rate or rates, Mr Deutsch pointed out that such knowledge could easily have been acquired by way of recoveries under a specification of documents.

The authorities referred to on behalf of the minuters related to circumstances where the individuals paying over the money were found to be personally liable. Those circumstances fell to be contrasted with the present situation where, as previously indicated, the permanent trustee had been convened ex officio and where, for that reason, any payment allowed fell to be made out of the sequestrated estate funds.

Mr Deutsch made reference to volume 12 of the Stair Encyclopaedia at paragraph 1014. He conceded that whilst there may be a right or entitlement to interest, the fundamental contention advanced on behalf of the respondent was that any such right should not be vindicated by a payment from the funds available to the general body of creditors in the sequestration.

Whilst the minuters sought to characterise the remedy in the second crave as one of "restoration", Mr Deutsch submitted that interest at the judicial rate was inconsistent with any such notion. If at all, the permanent trustee could only be held to account for the extent to which the sequestrated estate had become lucratus whilst the monies had been wrongfully withheld. In other words, the minuters might seek "restoration" of the original fund together with the "fruits" of the trustee's wrongful retention but that was not being sought in terms of the second crave of the minute.

Minuters' motion for leave to amend

The court was then addressed on various issues relating to the expenses of the minute procedure since its inception and I shall deal with those issues in due course. However, at or about the very end of the debate, counsel for the minuters sought leave to amend the terms of the second crave by inserting, after "1996", "...or such other rate or rates as to the court shall seem from time to time appropriate...", or words to that effect.

Perhaps unsurprisingly, that motion was opposed on behalf of the respondent. However, I indicated that I would give consideration to the same in the overall context of the competing submissions advanced in the course of the hearing.

Decision

[1] Whilst Mr Deutsch did not seek to develop the point to any great extent, I consider that there is nothing in principle to prevent a claim, such as that formulated within the first part of crave two, being directed against the permanent trustee. Effectively, that part of the crave amounts to an order for delivery. I reach that view notwithstanding the sheriff's decision in McArthur. That decision was not fully explained in the sheriff's note and he had not been addressed on the point. In my opinion, Section 31(6) of the 1985 Act could have no meaningful effect were there no corresponding right to delivery.

In Smith v Berry's Trustee 1996 SLT (Sh Ct) 31 and 80 (No 2) an application under Section 31(6) of the 1985 Act sought to have the proceeds of a bank account which had been released to a permanent trustee, excluded from the bankrupt's sequestrated estate. The application also sought to have the sum in question delivered to the applicant. Albeit that the case in its reported form was solely concerned with the competency of an appeal taken by the permanent trustee without leave of the sheriff, it does appear that the sheriff granted the orders sought by the applicant and that no issue was taken, in particular, as to the competency of the order for delivery of the sum in question.

[2] The declarator sought in terms of the first crave is unexceptional and clearly flows from the terms of Section 31(6). Nevertheless, Mr Deutsch argued, inter alia, that the order second craved was unsupported by that statutory provision.

[3] The minuters' second crave is based upon the proposition that the permanent trustee "wrongfully intromitted with the funds held for and on behalf" of the pension scheme. That crave also refers to "restoration" of the fund together with interest. It seems to me that the use of that word carries with it no particular legal significance but that the second part of the minute, in reality, involves an attempt to recover the pension fund monies under a condictio indebiti, the principle of that remedy being restitution. (See: Gwydyr v Lord Advocate [1894] 2 SLT 280).

[4] I am satisfied that, in principle, it is competent for the court to award interest on the sum craved by way of restitution. In Gwydyr (supra) the pursuers sought repetition of surplus teinds paid to the Crown in error, together with the interest thereon. The Crown admitted liability to pay the principal sum sued for, but refused to pay the interest. Lord Kyllachy took the view that there could be no restitution of the money unless interest was paid. He awarded interest at the rate of 3 per cent.

[5] Of course, whether interest is actually awarded will depend upon the particular facts and circumstances of each case. In Countess of Cromarty et al v The Lord Advocate [1871] 9 M 988, the Crown were held to be not liable for interest prior to a formal demand for repetition but for the period after the date of demand interest was awarded. Lord Deas issued a dissenting opinion. However, his brief remarks regarding unjust enrichment are to the point:

"The question is, whether a party who has uplifted the money of another, however much in bona fide, is entitled to make a profit thereon. The Lord Ordinary says he is not, and I think that is a sound principle." (Page 994).

[6] The various condictiones recognised by the law of Scotland are founded upon equitable considerations. For present purposes there can be no dispute but that the fund should never have formed part of the sequestrated estate. To that extent, it might be argued that the estate was unjustly enriched. Furthermore, it would seem to be inequitable were the estate to profit from the interest earned on the money involved.

[7] However, it is, in my view, necessary to distinguish between delivery/restoration of the sum of money representing the pension fund (on the one hand) and payment of any interest payable in respect of the wrongful retention of that fund over a period of time. In terms of Section 31(6) and general principle, there can be no difficulty in having the fund "restored to its rightful owners". In that regard, the minuters gain no preference over the creditors in the sequestration as the monies should never have formed part of the estate in the first place. The issue of preference does not arise.

[8] Contrast the payment of interest arising from the wrongful retention of the sum involved over a period of time. That, to my mind, constitutes a debt (on the debtor's estate) which has arisen subsequent to the date of sequestration. Accordingly, were the court to grant decree against the respondent qua trustee in favour of the minuters, for the payment of interest out of the sequestrated estate, such an order would, in my opinion, serve to defeat the provisions of the bankruptcy legislation.

[9] That was the issue discussed in the Thomson case. Various passages within the Lord President's opinion are worthy of repetition. However, at page 341, approximately a third of the way down the page, he had the following to say:-

"...I am of opinion also that the enforcement of a decree for payment against a trustee in a sequestration, expressed to be against him as such trustee, is by its very terms limited in two respects. First, the liability does not extend beyond the amount of the estate held by him in trust, and, second, as regards such estate, the decree is enforceable only in accordance with the law governing the distribution of sequestrated estates."

In Thomson, the earlier case of Crichton's Trustee v Stewart [1866] 4 M 689 was considered and applied. It is perhaps of some significance that the Lord Ordinary in Crichton's Trustee indicated that "...he was unable to find any case in which a charge for payment against a trustee on a sequestrated estate, at the instance of a creditor claiming to be ranked on that estate, has been sustained, unless where the charge has proceeded upon a decree against the trustee personally, or in regard to some matter for which he was held to have come under a personal obligation to pay."

[10] In my opinion, the difficulty which the minuters face in the present proceedings arises directly from the fact that the permanent trustee has been convened qua trustee. In Thomson, it seems to have been argued on behalf of the appellants that it would be competent to grant decree against the trustee on a sequestrated estate as such trustee, in an action in which the pursuer sued for a debt incurred after sequestration and as part of the costs of the sequestration. Consequently, that decree might be enforceable as against the trust estate before distribution and in priority to claims of creditors.

The Lord President in Thomson considered that scenario to be a possibility. However, that view was subject to two telling caveats. Firstly, it had to be recognised that the normal rule in that sort of situation was that the trustee was personally liable, and not merely qua trustee, in obligations entered into by him in the course of administering the estate. Secondly, even if a decree for payment against the trustee in sequestration as such trustee were to be allowed, it had to be construed as enforceable only in accordance with the law governing the distribution of sequestrated estates.

[11] In Crichton's Trustee, it was held that a charge against the trustee on a sequestrated estate to make payment of a debt for which the charger had obtained decree of constitution against the bankrupt estate, was incompetent during the dependence of the sequestration. The Lord Ordinary (Mure) was clear about the "evil" which the suspension of the charge was seeking to guard against:-

"...To allow the charge to proceed in order to enable the respondent to poind for payment of his debt, which was what he stated he intended to do, might be to put him in a position to secure a preference over the other creditors, to which, in the opinion of the Lord Ordinary, he does not seem to be entitled."

The charger having reclaimed, Lord Curriehill, who expressed the same opinion as the other judges, was commendably succinct:-

"I am of the opinion that the trustee is not only not bound to comply with the charge, but that he is not entitled to do so. As the trustee on a sequestrated estate, he cannot pay one creditor in preference to another. He is not entitled to pay anyone, except in the course of the sequestration." (It is to be noted that the trustee's counsel was not even called upon to reply).

[12] In the present case, counsel for the minuters submitted that they did not fall to be regarded as creditors. That may very well be so in relation to their claim for declarator and delivery of the asset excluded from vesting viz. the pension fund. However, when it comes to the claim for interest, I consider that they are, in effect, no more than creditors seeking to recover a particular debt owed to them. The minuters' counsel also resisted the notion that the interest sought could be characterised as a "debt". I agree with Mr Deutsch's contention that the interest sought is very plainly a debt. In any event, whatever legal nomenclature is attributed to the payment of interest, it is equally plain that were the court to grant decree in terms of the second crave, it would be facilitating the procurement of a preference over the creditors in the sequestration. Were decree to be granted in terms of that crave any attempt to enforce such a decree would be struck at, all in terms of the authorities referred to above.

[13] The proposition stated by Lord Curriehill in Crichton's Trustee may provide meaning to the remarks made by the sheriff in McArthur, although I express no concluded view on that. After all, the prohibition upon the permanent trustee from paying out money, except in the course of the sequestration, is entirely consistent with the underlying principles of the bankruptcy legislation. That is possibly what the sheriff had in mind when he stated that he had found no provision in the Bankruptcy Act authorising "a claim for payment of money in terms of a sequestration process". (For the avoidance of doubt, it will be apparent from my earlier observations that I regard a crave seeking delivery of an asset excluded from vesting as being fundamentally different from any attempt to obtain payment of a separate sum of money from the sequestrated estate.)

[14] The case of Tibbert does not avail the minuters. It concerned an action founding upon breach of trust. Whilst the court held that it was empowered to award interest on the claim at common law, it seems that the defenders were sued in a personal capacity and not qua trustees.

[15] In all the circumstances, an order giving effect to the first part of the second crave would be superfluous in the sense that the fund has already been paid over to the minuters. Furthermore, for the reasons expressed, I am of the opinion that for the court to ordain the respondent qua permanent trustee to make payment of any sum of money representing interest on the fund, would offend the equalising provisions of the bankruptcy legislation and that a decree to that effect would be immediately redundant in the sense that no "lawful" diligence could proceed upon it. I therefore conclude that the second part of crave two is incompetent and that the minute should be dismissed.

[16] It follows that the minuters' motion for leave to amend is refused. Having regard to the basis for my decision, the amendment would have been of no consequence in any event. However, I should state that had I considered it appropriate to decern against the respondent for the payment of interest in terms of the second crave, I would have awarded such interest at the judicial rate from the date of citation. To that extent, I would have followed the approach taken by Lord McCluskey in the Trans Barwil Agencies case cited by counsel for the minuters. Moreover, it seemed to me that whilst the minute as initially presented was defective for want of title to sue on the part of Mr. Crimin, in substance, it constituted a formal judicial demand for payment which, following service, the respondent was well aware of. Accordingly, the date of citation would have been an appropriate starting point. The situation in H.M.V. Fields, falls to be distinguished since it concerned the substance of the claim as opposed to its form.

[17] As regards expenses, I have reflected upon the numerous interlocutors since 1 June 2000. There is, of course, an issue as to what award should be made in relation to the period between that date and the date upon which the minuters with title were correctly identified in the proceedings. Whilst the relevant minute of amendment may have been lodged in October 2002, the minute for declarator etc. wasn't amended until 13 January 2003. Whilst the amendment resulted from the respondent's challenge in respect of Mr. Crimin's title to sue (i.e. qua individual), to a significant extent the application was ultimately successful in that the pension fund monies were paid over. Accordingly, looking to the substance of the matter rather than the form, I consider it appropriate to make no award of expenses in relation to the period between the commencement of the procedure and 13 January 2003. Thereafter, Mr. Deutsch accepted that the respondent should bear the expenses until 14 May 2003 when, the court was advised, the first crave had been granted. However, Mr. Deutsch sought the expenses of process from 14 May to date (under exception of one aborted diet) and in light of the respondent's success I have given effect to that motion. Finally, it seemed to me that the employment of counsel was justified in respect of the debate which took place before me. However, to my mind, the procedure as a whole was neither sufficiently complex nor unusual to merit counsel's involvement. That being so, I have merely sanctioned the employment of junior counsel quoad the diet of debate on 19 January 2004.

SHCALS.JH.21.01