Scottish Sheriff Court Decisions

Case Ref: B2470/10

SHERIFFDOM OF LOTHIAN AND BORDERS AT EDINBURGH

JUDGEMENT

of

SHERIFF WILLIAM HOLLIGAN

In the Petition

of

(FIRST) DAVID MALCOLM MENZIES, Chartered Accountant formerly having a place of business at 1^st Floor Quay 2 139 Fountainbridge, Edinburgh, EH3 9QG and now having a place of business at Atholl Exchange, 6 Canning Street, Edinburgh, EH3 8EG; and (SECOND) KEITH VEITCH ANDERSON, Chartered Accountant, 1^st Floor Quay 2 139 Fountainbridge, Edinburgh, EH3 9QG

PETITIONERS

_____________

Act: Tods Murray

EDINBURGH, 14th January 2011

[1] The petitioners are chartered accountants and licensed insolvency practitioners. They were appointed as joint insolvency office holders in a number of insolvencies including court appointments as joint liquidators of the ten companies which are the subject of the present petition. Of those ten liquidations, five were raised in Edinburgh sheriff court, one in Duns sheriff court, one in Haddington sheriff court, one in Jedburgh sheriff court and the remaining two in Selkirk sheriff court ("the schedule companies").

[2] The petitioners are designed as being employees of the firm of Baker Tilley Restructuring and Recovery LLP ("BT"). The first petitioner, Mr Menzies, left the employment of BT in or about 28 February 2010 and has taken up employment with another firm of chartered accountants. It is averred that the first petitioner will have no access to the files and papers relative to the schedule companies following his departure from BT. The petition sought the removal of the first petitioner as joint liquidator of the schedule companies and the appointment of Mark Nicholas Ranson as joint liquidator in his place.

[3] As there was some need for expedition, after advertisement, I granted the petition, albeit in slightly different terms from that craved, and stated I would give my reasons in writing therefor at a later date. There are two issues in this petition: (1) the procedure for the removal and appointment of a liquidator in circumstances such as this; (2) the application of the procedure to the sheriff court.

[4] In relation to the first issue, Mr Dobie relied upon the case of Geddes Petitioner 2006 SLT 664. As I respectfully adopt the reasoning and conclusions in that case I can be brief. In short, in terms of section 172(6) of the Insolvency Act 1986 ("the 1986 Act") a liquidator may resign in certain prescribed circumstances, the circumstances being set out in Rule 4.28 of the Insolvency (Scotland) Rules 1986 ("the 1986 Rules"). Rules 4.28 and 4.29 of the 1986 Rules set out the procedure for a liquidator to resign. They require the liquidator to convene a meeting of creditors for each liquidation for that purpose. If no creditor attends the meeting, a meeting is deemed to have been held and it is further deemed that the liquidator is entitled to resign and to have his release. The procedure is expensive. Experience has shown that where a liquidation has been under way for some time and there is little prospect of a dividend to creditors, creditors often take little or no interest in the administration of the liquidation. A practice has developed in England to allow for a "shortcut" procedure in which a single application is made to the High Court to allow a liquidator to resign from office in relation to a number of appointments which he holds and for the appointment of another person to act as liquidator in his place. The procedure is set out in the case of Re Equity Nominees Limited [2000] BCC 84. In the case of Geddes, Lord Drummond Young held that such a procedure was competent in Scotland. His Lordship held that, in Scotland, the court has a statutory power to remove a liquidator under section 172(2) of the 1986 Act and the power at common law to appoint a replacement liquidator.

[5] I was informed that the first petitioner had submitted a petition to the Court of Session in relation to various appointments he held as liquidator. The schedule companies either were, or were to be, included in that petition. Given that the schedule companies involved sheriff court processes, ultimately no order in relation thereto was pronounced by the Court of Session. Hence the current petition.

[6] That leads me to the second issue which this petition raises. As I have said, I respectfully adopt the reasoning and conclusion of Lord Drummond Young which I considered allowed me to deal with that part of the petition which related to liquidations in dependence in Edinburgh sheriff court. It is in relation to the liquidations in dependence in other courts within the sheriffdom that I had greater concern.

[7] In support of this part of a very helpful submission, Mr Dobie referred to the following authorities Tait v Johnston (1891) 18R 606; McCormick v Campbell 1926 42 Sh Ct Rep 124; Southside Sawmills Limited v Buchanan 1963 SLT (Sh Ct) 19; Simpson v Bruce 1984 SLT (Sh Ct) 38; Spence v Davie 1993 SLT 217; McPhail, Sheriff Court Practice (3^rd edition) paragraphs 2.03 and 6.02; section 7 Sheriff Courts (Scotland) Act 1971 ("the 1971 Act").

[8] Put simply, I was being invited to make an order in this court relating to a process which is in dependence in another court within the sheriffdom. In my opinion there are two aspects to this issue: (a) whether I have the power to make such an order; (b) if so, whether such an order should be made.

[9] At the risk of stating the obvious, Scotland is divided into 6 sheriffdoms and within those sheriffdoms (other than Glasgow) there are several sheriff court districts. The establishment of districts within a sheriffdom is now largely regulated by section 3 of the 1971 Act. That section maintains the extent of the various sheriff court districts existing immediately before the commencement of the 1971Act and gives to what is presumably now the Scottish Ministers the power to alter the boundaries of the districts and to provide for their abolition. The 1971 Act implemented a number of recommendations of the Grant Committee Report on the Sheriff court (Cmnd 3248) (see in particular paragraph 4.40 in relation to Sheriff court districts). As the Report said, although the history and extent of the various sheriffdoms is fairly well documented, the history of the creation of sheriff court districts within those sheriffdoms is clothed in some obscurity (see paragraphs 11 and 12 of the Report). No doubt that is why section 3 was enacted.

[10] Section 7 of the 1971 Act provides as follows: - "For the removal of doubt it is hereby declared that a sheriff by virtue of his appointment as such, has and is entitled to exercise the jurisdiction and powers attaching to the office of sheriff in all parts of the sheriffdom for which he is appointed". It appears to me that section 7 is the statutory successor to a series of now repealed provisions. The Sheriff Court (Scotland) Act 1853, the Sheriffs (Scotland) Act 1870 and section 31 of the Administration of Justice (Scotland) Act 1933 all, in one form or another, provided for the Secretary of State to form new sheriffdoms by uniting into one sheriffdom two or more counties or parts of counties. The formula employed in this legislation was to provide that such an order shall "have effect as a complete union as regards the jurisdiction, powers and duties of the Sheriff and his substitutes" (section 31(3) of the Administration of Justice (Scotland) Act 1933). Part 1 of Schedule 2 to the 1971 Act repealed the relevant provisions of section 31 which was why, I assume, it was felt necessary to enact section 7.

[11] It is clear from the cases of Tait, McKinnon and Southside that where there was a united sheriffdom, a sheriff had jurisdiction throughout that sheriffdom and not only within his district. The reasoning, particularly in Tait (where the only opinion of any length was delivered by the Lord Ordinary), was specifically based upon the relevant parts of the 1853 and 1870 Acts to which I referred to above. I note that in the cases of Tait and McKinnon the challenges to jurisdiction came either after decree had been granted or as part of a plea of no jurisdiction. In the case of Tait, the defender was cited as a defender in proceedings raised at Edinburgh sheriff court whereas he lived at Innerleithen. He challenged the jurisdiction of Edinburgh sheriff court. The report is not entirely clear as to where within the sheriffdom he said he should have been cited but there appears to be no doubt that it was somewhere within the then sheriffdom. Spence v Davie was also a challenge of a decree on the basis of no jurisdiction. These cases did not concern the issue of a sheriff in one district making an order in relation to a process in dependence in another district. The question was whether the relevant order or orders could have been made in the first place. Simpson v Bruce is slightly different. That concerned the granting of a warrant to cite a defender. The alleged wrong was said to have taken place within the district of Linlithgow. When the pursuer sought a warrant the court was closed because of a local holiday. A warrant to cite was granted at Edinburgh sheriff court. The defender contended that the proceedings were null and void by reason of the initial warrant not having being granted by a sheriff at Linlithgow. Both the sheriff and sheriff principal rejected this argument. Sheriff Principal O'Brien QC held, partly by reference to section 7 of the 1971 Act, that there was no reason in principle why a sheriff should not be entitled to hear in his own court a case from another court within the sheriffdom. It does not appear from the report that the sheriff principal was referred to, or relied upon, any of the case law to which I was referred to.

[12] In my opinion, on the basis of the foregoing, I considered that I did have the power to make the order I was being invited to make in this case, notwithstanding that it related to other processes within the sheriffdom. If I were to conclude that there is no power to make an order affecting a matter within another district such a conclusion would mean that, in effect, the jurisdiction of a sheriff is limited to a particular district which would be at odds with the terms of section 7.

[13] However, if there is a power, the next question is whether it ought to be exercised and, if so, on what basis? It takes little imagination to see that, leaving aside matters of professional courtesy between sheriffs, an unregulated right for litigants to raise actions in any district within the sheriffdom and to pursue interlocutory applications in any district therein could be a recipe for administrative confusion. I note that there was a Practice Direction within the sheriffdom of Lothian and Borders which, to a limited extent, regulated such matters (see 1977 SLT (News) 147- now repealed see MacPhail para 6.02). As I read them, the authorities to which I was referred all recognise the possibility of difficulties arising from the exercise of the power. Indeed, in Simpson, the sheriff principal went as far as to refer to the risk of abuse. In Tait, the Lord Justice Clerk described the power in terms of reasonableness (page 610); in McKinnon, the sheriff principal referred to the exercise of a discretion (page 130); in Simpson the sheriff principal referred to the grant of a warrant to cite in a district other than what might be thought to be the appropriate one as being done where special reason is shown (page 39). It is difficult to reconcile the various dicta to which I have referred into one test. In my opinion, in the absence of a specific direction by the sheriff principal as to the administration of business within the sheriffdom, where there is what, for reasons of convenience I might describe as an "out of district" application, whether that is at the stage of an initial warrant or subsequent order, it seems to me that all the authorities recognise that a litigant does not have an unqualified right to insist upon the application being granted and that the sheriff has a discretion as to whether to make such an order. I do not think that the authorities provide different tests for different orders. Furthermore, the circumstances and factors relevant to each case may vary widely. The current division of business within districts is well known by sheriff clerks and practitioners and works well. In expressing the matter by way of the exercise of a discretion simpliciter does no more than recognise that a departure from normal practice will have to be justified by the party seeking such an order.

[14] Returning to the present case, the petition before me is, in many respects, administrative. Its purpose is to avoid delay and expense. It is highly unlikely that, had I refused the petition, it would have served any useful purpose in doing so. Refusal would require separate petitions in other courts. After advertisement, there was no opposition to the grant of the order Accordingly, I decided in the exercise of my discretion to make an order. The terms of the order were to remove the first petitioner as joint liquidator of the schedule companies and to appoint Mark Nicholas Ranson to be joint liquidator in his place. I directed the petitioner to send certified copies of this order to the sheriff clerk in each of the sheriff court districts of Duns, Haddington, Jedburgh and Selkirk and for the sheriff clerk in Edinburgh to place a copy of the order in the process of each of the five liquidations in Edinburgh sheriff court. I also directed intimation of the interlocutor to the Registrar of Companies (see paragraph 16 of the Opinion of Lord Drummond Young in Geddes) and also to the Accountant in Bankruptcy who maintains the Register of Insolvencies. There was a crave that a proportion of the expenses relative thereto be allocated to each of the schedule companies. As these applications were brought about by what seemed to me to be commercial considerations personal to the liquidators I did not consider that the expenses of the petition should be borne by the company or the creditors.