Scottish Sheriff Court Decisions

Accountant in Bankruptcy, permanent trustee on the Sequestrated Estate of Mrs Diane Clough ( Pursuer ) v David Clough (First Defender ) Diane Kinniburgh or Clough (Second Defender ) and Robyn Ellen Kinniburgh-Clough (Third Defender )

A73/09

 

Note:

 

This is an Action brought by the Accountant in Bankruptcy seeking a finding that she is entitled to insist in an action of Division and Sale of the property known as 19/1 Allanfield Edinburgh . The First and Second named Defenders are the pro indiviso heritable proprietors of these subjects. The Pursuer seeks the authority of the court to sell the subjects and dispense with the Second Defender's consent all in terms of the Bankruptcy (Scotland ) Act 1985 ( " The 1985 Act") Section 40 (1)(b) and (2) -together with ancillary powers to put into effect any orders that the court might make relating to sale .

 

On 22 April 2010 I heard parties in debate on the Pursuer's preliminary pleas. Mr Foyle appeared for the Accountant in Bankruptcy who is the Permanent Trustee on the Sequestrated estate of Mrs Diane Clough who resides at 19/1 Allanfield Edinburgh and who is the Debtor and who will be referred to as the "Second Defender" . Mrs Wallace appeared for the Second Defender. The First Defender is the estranged husband of the Second Defender who has a pro indiviso half share in the subjects at Allanfield but no longer lives there. The Third Defender is the daughter of the First and Second Defenders and is a student in Aberdeen. She is said to live with her Mother when not at University. The First and Third Defenders did not lodge a Notice of Intention to Defend and have been held as confessed

 

Amendment of Pleadings

 

The second defender sought to amend the Record prior to Debate. The Minute of Amendment is No 12 of Process. The Amendment seeks to make certain admissions which should have been in the Second Defender's knowledge from the outset ; to provide some specification to flesh out the Second Defender's Answer 3 dealing with the Heritable Subjects and the section 40 order sought by the Pursuer; furthermore the Amendment provides Pleas in Law in place of the doubtful Pleas stated on Record.

 

That said the Pursuer did not oppose the Second Defender's Minute of Amendment. The Pursuer could be said to be neutral on that matter and was of the view that the Amendment did not cure the defects in the Second Defender's pleadings which the Pursuer considered to be irrelevant in both their present and amended state. The Pursuer did not require to answer the Amendment

 

Accordingly I consider that it is proper, given the pursuers position on the defenders minute of amendment that I adjudicate the Pursuer's preliminary pleas in this case taking the second defender's pleadings at their highest point. Therefore I will allow the second defender's motion to have the record opened up and amended in terms of her minute of amendment (No 12 of process) and the debate had indeed proceeded from the point of view of both the unamended and the amended pleadings.

 

Pursuer's Submissions

 

The case called for debate on the pursuers' preliminary pleas and the pursuer seeks decree in terms of craves 1, 2 and 3 reserving for the court to pronounce further if necessary on any further craves.

 

The pursuer has been permanent trustee on the Second Defender's sequestrated estate since 6 July 2006, the date of sequestration being 13^th January 2006. That averment is neither specifically admitted nor denied instead it is met with "not known and not admitted " and there now seems to be an acceptance that the pursuer is indeed vested in the Second Defender's estate.

 

The Pursuer, being vested in the Second Defender's estate, is the co-owner of the heritable property which constitutes the only asset in the Debtor's estate. As such the Pursuer has an absolute right to insist on division and sale of the property. In support of that well established proposition I was referred to the Inner House decision in Upper Crathes Fishing Ltd v Bailey's Executors 1991 SC 30 and the opinion of Lord President Hope who in turn affirmed the decision of Lord Salveson in Morrison v Kirk (1912 SC 44 ).

 

The second defender's interest in 19/1 Allanfield has vested in the pursuer as the permanent trustee by virtue of the provisions of the Bankruptcy (Sc) Act 1985(as amended) section 31. The permanent trustee therefore has an absolute right to seek division and sale. However as this is a "family home" as defined in that Act section 40 of the 1985 Act applies. Section 40 (2) gives a list of factors which should be taken into account when application is made to the court for authority to sell , the relevant consent not being forthcoming. However, overall the court must take account of all the circumstances of the case (Burns Trustees v Burns 2002 SLT 1383) Lord Philip at page 1386 states:-

 

"[16] Section 40(2) enjoins me to have regard to all the circumstances of the case. I consider that these include both the public interest and the first defender's behaviour. In my view it is in the public interest that sequestration should be brought to an end within a reasonable time and should not be allowed to drift on for an indeterminate period. It is also in the public interest that expenses of administration paid for by the public purse should be recouped".

 

The Pursuer , in support of her preliminary pleas , argues that the defences even as amended do not disclose a stateable defence to the Action and do not provide the court with specification and information which would entitle the court to refuse the order sought by the Pursuer in terms of Section 40 of the Act.

 

I heard detail submissions on the pleadings , however having allowed the Second Defender's Minute of Amendment I will deal with the submissions made on the Amended pleadings which are of significance to the issue of whether the Pursuer is entitled to the Order sought in Crave 2 and the relevance of the defences.

 

The Pursuer highlighted three main points :-

 

1.      Recall of Sequestration

2.      The needs and financial resources of the Third Defender and the period during which the family home has been the Third Defender's residence(Section 40(2)(b)&(d)

3.      The interests of Creditors

 

Recall of Sequestration

 

The averments in Answer 2 relating to the Second Defender's intention are far too vague and in specific to form a relevant defence to the Order sought. The award of Sequestration was January 2006 more than four years ago but no Petition for Recall has been lodged. The averments are brief and relate to an "intention "only. Despite more than 4 months elapsing since the Defences were lodged stating this intention no Petition has been lodged seeking recall in the Court of Session. Furthermore, the grounds which the Second Defender intends to put forward should a petition be lodged -namely that she was not liable for the debt and ought not to have been sequestrated - would not constitute good grounds in terms of section 17 of the 1985 Act.

 

Sections 16 & 17 of the 1985 Act deal with Petitions for recall. Such a petition may be presented within 10 weeks after the date of award of sequestration (Section 16(4)) but may be presented at any time if the Petition is presented on any of the grounds mentioned in paragraphs (a) to (c) of Section 17 (1). No Petition has been presented therefore the Second Defender requires to rely on one the grounds referred to in S17 (1) - the grounds articulated in Answer 2 do not constitute any of these grounds.

 

Further the Second Defender's speculative position on Recall does not offer any defence to the Pursuer's craves as the issue of the Trustee in Bankruptcy's fees and remuneration require to be dealt with from the Debtor's estate.

 

These averments it is submitted are therefore irrelevant.

 

Section 40 (2) (b) &(d) of the 1985 Act

 

I was reminded that the unamended pleadings offered no assistance to the court or notice to the Pursuer of the Second Defender's averments of fact relating to the Section 40 (2) enumerated issues especially sub paragraphs (b) and (d) being matters within the Second Defender's knowledge.

 

The amendment adds some averments which the Pursuer's solicitor urged me to hold to be irrelevant for want of specification

 

It was not thought that sub Para (a) was apt given the First Defender's failure to enter the process. He is indeed estranged from the Second Defender.

 

The averments which relate to (b) and (d) are to be found in Answer 3 as amended. They give brief information relating to the Third Defender (18) who is a student at Aberdeen University where she resides during term time but lives with her mother when she returns to Edinburgh. She is not financially independent and relies on her Mother for support. The Second Defender has lived in the family home since 1989 and it has therefore been the Daughter's home throughout her life.

 

The Pursuer's position is that these averments do not assist the Second Defender and certainly do not supply information which taken at its highest would allow the court to withhold its authority to the Pursuer proceeding with a sale.

In essence the averments lack specification- there are no details of the Third Defender's income and expenditure and funding of her university course. There are no averments relating to the importance of having a home in Edinburgh and in particular this home rather than another base in Edinburgh given that she is studying in Aberdeen.

 

The bald averment stating when the home became the family residence does not advance matters either. There are no averments dealing with the availability of alternative accommodation and the steps taken to find suitable accommodation in public or private sector letting.

 

Accordingly as there are no circumstances averred on Record that would support refusal of the order in terms of Section 40 (2) (b) or (d) the Second Defender is bound to fail as the court can only refuse the order if the court is satisfied that, having regard to all circumstances but particularly sub paragraphs (b) and (d) that these factors weigh against the order being granted.

 

Interests of Creditors

 

 

Not only are there no good reasons stated under these headings there are good reasons to allow the order in terms of sub paragraph (c) -the interests of creditors.

 

The interests of the creditors would be met if the heritable property was sold as they would be paid in full. Further there is the wider public interest referred to in Burns (supra ) which demands that the Pursuer's fees and remuneration be paid from the debtors estate rather than the public purse.

 

I was urged to find that the Pursuer had an absolute right to seek Division and Sale. That the effect of Section 40(2) of the 1985 Act was to allow the court to take account of all circumstances and may only refuse or postpone the grant of the application if there are grounds or reasons for so doing having particular regard to Section 40 (2) (a) -(d). That there are no circumstances averred on record that would allow the court to exercise its discretion in favour of refusing permission to sell in the absence of the Second Defender's consent.

 

I was asked to sustain the 1st and 2^nd pleas in law for the Pursuer; repel the pleas for the Second Defender and to grant decree in terms of Craves 1 2 &3 of the Initial Writ together with expenses as taxed but continuing the cause in respect of the remaining craves

 

 

Submissions for Second Defender

 

Ms Wallace for the Second Defender fairly conceded that the information provided by the Second Defender was inadequate but gave just sufficient notice of the proposed line of defence which her client would take particularly with regard to Recall of Sequestration and the Second and Third Defenders circumstances.

 

Recall of Sequestration was the main plank of her argument and she sought a continuation to allow the Second Defender's legal aid application to be progressed and a Petition lodged. I was informed that legal aid had been refused due to lack of supporting information but that further documents had been provided so that the only issue was to seek amendment of the grant of Legal Aid to cover lodging a petition in the Court of Session

 

She relied on the decision in Graham v John Tullis (Plastics) Ltd (No2) 1992 SLT 514 to support the proposition that there was no presumption that the Trustee in Bankruptcy's fees should be paid from the Debtor's estate. The court had discretion as to expenses in insolvency proceedings. She therefore suggested that it was wrong in law to conclude that in the event of the Recall being successful the matter of fees and remuneration would still fall to be paid from the Debtor's estate. She submitted that in these circumstances the Petitioning Creditor should be liable for the Trustee's fees given that the grounds of Sequestration were wrongeous ab initio.( Section 17(4) of the 1985 Act).

 

It was submitted that the public interest argument referred to by the Pursuer was trumped in effect by the wider public interest which existed and related to the wrongful use of Sequestration as a diligence in respect of Council Tax arrears. It was important that the Second Defender's estate be preserved pending her attempt to recall the Award of Sequestration. Her case was important in the wider interest of other citizens who may have been unfairly dealt with over Council Tax.

 

I was urged to repel the preliminary pleas for the Pursuer and remit the cause, as amended by the Second Defender's Minute of Amendment, to probation the Second Defender having given notice of a relevant case in terms of Section 40 of the 1985 Act which would allow the court to exercise its discretion to refuse or postpone authority to sell the family home.

 

Decision

 

I gave my Decision in this case from the bench on 22 April 2010 and this written judgement supplements that and gives fuller reasons.

 

The starting point is the settled law which affirms the absolute right of a joint or co-owner to insist in an action of Division and Sale. (Upper Crathes Fishings Ltd v Bailey's Exrs 1991 SC30 following and approving Morrison v Kirk 1912 SC 44.)

 

In this case there is an admission that the First and Second Defenders became pro indiviso proprietors of the subjects on 19^th May 1989 and that the Second Defender's estate became vested in the Pursuer following her sequestration in terms of the Bankruptcy (Sc) Act 1985.The Pursuer thus becomes the co-owner of the heritable property which forms the subject of this action.

 

Lord Salveson's opinion in Morrison v Kirk has long been regarded as the correct statement of the law on the rights of a pro indiviso proprietor. It was approved in Upper Crathes. His statement of the law is:-

 

"Unless a pro indiviso proprietor has barred himself by contract from resorting to an action of division or sale he has an absolute right at common law to insist on such an action. If it should turn out that division is impracticable, or would operate unfairly, then his remedy is to have the properties sold and the price divided"(at page 47)

 

On the face of it there is no answer to the Pursuer's First Crave which seeks a finding and declaration that she is entitled to insist on Division and Sale of the Subjects known as 19/1 Allanfield Edinburgh..

 

The subjects are however a family home within the meaning of Section 40 of the 1985 Act which brings the provisions of that section into play and has the effect of qualifying the right of the permanent trustee to sell the heritable property. As the Pursuer has been unable to obtain the consent of the Second Defender (the Debtor) who lives in the home - the pursuer requires the authority of the court for the sale. That is the Pursuer's second crave supported by her third Plea in Law.

 

The legislation is clear as to what the court's powers are where the Permanent Trustee requires to obtain the authority of the court. It invests in the court discretion to refuse to grant the application; postpone the grant of the application or grant the authority -subject to such conditions it may prescribe. In other words the court has wide discretionary powers.

 

Section 40(2) sets out the factors which the court is required to have regard to before it exercises the discretion invested in the court over the application before it. That requirement is to have regard to" all the circumstances of the case". The words that follow do not qualify that requirement but give particular examples of factors in enumerated paragraphs which bear to have some importance and have been emphasised no doubt due to them being of particular relevance to the nature of an application to sell a Debtor's home and the understandable concern about the effect of that sale on the welfare of a Debtor's dependents .

 

The paragraphs of relevance in this case are (b) (c) and (d) -

(b) - the needs and financial resources of any child of the family

(c) - the interests of creditors

(d) - the length of the period during which the family home was used as a residence by ... the child of the Debtor

 

Accordingly given that the court requires to consider all relevant circumstances including those mentioned above the parties who are seeking to persuade the court to exercise its discretion in their favour should place before the court such averments of fact which are material and which they wish the court to have regard to.

 

The record sets out no facts which would permit proper consideration of the enumerated factors in section 40(2) as regards the circumstances of the Second Defender and her daughter. The Minute of Amendment for the Second Defender has sought to remedy that, however, in my view, it still leaves woefully inadequate averments regarding the second and third defenders resources and needs financial or otherwise. There is no specific information provided by way of averments relating to income or capital or other means of financial or other support provided by the second defender to her daughter. There are no specific averments which might indicate the impact on the Third Defender of the family home in Edinburgh being sold when she lives and studies in Aberdeen for much of the year. There are no averments in particular relating to whether alternative accommodation has been sought and is available. It would be difficult to accept that no such accommodation is available in either the public or private rented sector. Indeed the Second Defender's averments add little to the Pursuer's averments in Condescendence 3.

 

On the other hand in Condescendence 5 the Pursuer makes averments directly relevant to paragraph (c) of the enumerated paragraphs in Section 40(2) of the Act- namely the interests of the creditors. The Pursuer requires to sell her interest in the subjects for the benefit of the creditors. The Subjects are the only asset which can be sold for the benefit of creditors.

 

Further the Pursuer avers that the sequestration should be completed as soon as possible and that the Pursuer's fees and remuneration be paid from the Second Defender's estate. Thus far the Pursuer's expenses have been paid from the public purse. The public interest involves considerations such as expedition and recovery of such costs. This was confirmed in Burns' Trustee v Burns (supra) and I agree that such considerations are important -namely that sequestration proceedings should not be allowed to drift on unnecessarily. Delay causes expense. This is well known in the context of civil litigation generally.

 

The interests of creditors is clearly an issue of significant importance -not only because it enjoys status as an enumerated heading in Section 40 -but more so because it is fundamental to the purpose of sequestration - that the debtors estate be ingathered and distributed for the benefit of the body of creditors.

 

That said the Bankruptcy(Sc) Act 1985 provides important safeguards for the Debtor and his /her family and an opportunity is provided by Section 40 to the Debtor and her child to place before the court circumstances which may weigh with the court against the interests of creditors and the interests of minimising delay and cost . The court can then consider all circumstances when deciding on the Trustee in Bankruptcy's application to sell the only capital asset which is the family home.

 

Clearly I have to balance all circumstances which include the facts informing the second and third defenders interests, the interests of creditors and also the public interest that such sequestrations are dealt with properly and effectively without undue delay and without unnecessary cost to public funds. As I have said the pleadings for the Second Defender even as amended leave the circumstances of the Debtor and her child woefully in specific and lacking in any proper information which would assist me in dealing with the enumerated clauses of section 40 (2). The defences, as amended, do not disclose to me circumstances which would justify me refusing to the pursuer the courts authority to sell the family home. Accordingly, put another way, it means that I consider there is ample justification for granting the authority which the Accountant in Bankruptcy seeks. The lack of specific information adduced on behalf of the Second Defender contrasts with the compelling reasons put forward by the Pursuer relating to the interests of creditors and the public interest.

 

Underpinning this application is the averment by the second defender on Record that she intends seeking a recall of the sequestration. Recall is governed by sections 16 and 17 of the 1985 Act. No petition for recall has been served despite four years having elapsed since the award of sequestration. There is no explanation for this delay despite the second defender I am told feeling a significant sense of being aggrieved at being sequestrated for a council tax debt which she thought she might not be liable for.

 

Any Petition for Recall of Sequestration would require to be governed by the provisions of Section 17 of the Act as no petition has been lodged within 10 weeks of the Award of Sequestration. A Petition would require to be presented on one of the grounds mentioned in paragraphs (a) to (c) of Section 17 (1). The Second Defender fails to aver that any of these grounds exist. It is clear that the grounds in Paras (a) and (b) are not available to the Debtor and it is thought that ground (c) also would not be apt. The Debtor avers no more than an intention to lodge a Petition for Recall and fails to expand upon that in her Minute of Amendment or give reasons for the delay.

 

The averments relating to the anticipated Petition are so vague and inspecific as to be irrelevant. Indeed the issue of Recall of Sequestration must be wholly irrelevant as it cannot form a defence to an application under Section 40. The sequestration must proceed unless recalled by interlocutor of a Lord Ordinary in the Court of Session. Until then the Trustee in Bankruptcy has full powers and is vested in the Debtor's Estate. If a Petition for Recall was successful the Lord Ordinary's interlocutor would suspend any Sale and the Trustee in Bankruptcy's right to Division and Sale would fall

 

Accordingly I consider that the Second Defender's case in terms of the Pursuer's Section 40 application is irrelevant through lack of specification in the sense that even if the Second Defender proved all her averments stated on Record as amended she would still fail. She is unable to offer specific information which would weigh in the balance against the Pursuer's duty to the creditors and the public interest. I therefore repel the pleas for the second defender; sustain the first and second pleas for the Pursuer and grant decree in respect of Craves 1, 2 and 3 for the Pursuer reserving to pronounce on any further orders required.

 

The Pursuer will be entitled to her expenses in this cause all as may be taxed.