,
Lords Macnaghten,
James of Hereford, and
Dunedin.)
48 SLR 699
Galbraith
v.
Grimshaw.
Subject_Bankruptcy — Conflict of Law — Foreign Bankruptcy — Security Prior in Date.
Facts:
A foreign bankruptcy is recognised only from its date, and does not cut down security rights obtained before that date, although they would be cut down by the law of the foreign bankruptcy.
Goetze v. Aders (
1874, 12 S.L.R. 121,
2 R. 150)
approved.
Headnote:
The appellant was a trustee in a Scottish sequestration. The respondents, who were judgment creditors of the bankrupt, had attached by a garnishee order an English debt due to the bankrupt. This security, being obtained less than sixty days before the date of the Scottish sequestration, would have been thereby cut down had it taken the form of letters of arrestment of a Scottish debt.
The Scottish trustee contested the effect of the garnishee order, and judgment against him was pronounced by the Court of Appeal (
Farwell, Buckley, and
Kennedy, L.JJ.).
The trustee appealed.
At the conclusion of the arguments their Lordships gave judgment as follows:—
Judgment:
Lord Chancellor (Loreburn)—In this case I think that the conclusion arrived at by the Court of Appeal ought to be supported. To my mind your Lordships would be wise to apply the rule explained by Lord President Inglis in the case of
Goetze v. Aders (
1874, 12 S.L.R. 121,
2 R. 150). I think that the rule is applicable in England also. An attachment in England will not prevail against a claim of a foreign trustee in a bankruptcy which is prior in date, provided that the effect of the bankruptcy is to vest in the trustee the assets in question. If the attachment is prior in date, then I do
Page: 700↓
not think that it will be affected by the title of the trustee in a foreign bankruptcy; and the reason is that a foreign law making the title of the trustee relate back to transactions which the debtor himself could not have disturbed has no operation in England, while the English law as to relation back applies only to cases of English bankruptcy, and therefore the trustee may find himself—as in this case—falling between two stools. I think in each case that the question will be whether the bankrupt could have assigned to the trustee, at the date when the trustee's title accrued, the debt or assets in question situated in England. If any part of that which the bankrupt could have then assigned is situated in England, then the trustee may have it; but he cannot have it unless the bankrupt could himself have assigned it. It follows that the trustee cannot have this debt free from the garnishee order, because the bankrupt could only have assigned it on the 12th November subject to the garnishee order. With regard to section 117 of the Bankruptcy Act 1883, I think that it affects procedure and does not enlarge the rule to which I have referred, and I am not prepared to accept and act upon the case of
Solomons v. Ross, which is scantily reported in
1 H. Bl. 131n., to which we have been referred. I am not prepared to accept that case as an authority against the rule which I have mentioned. I will not say that there may not be exceptions to that rule—as, for example, if the effect of the foreign bankruptcy were to transfer to the trustee only part of the assets of the bankrupt. Such points, to my mind, ought not to be settled or treated as settled except after consideration of the cases in which they actually arise. But I think it enough to say that in the present case I see nothing that should disturb the rule or the principle to which I have adverted.
Lord Macnaghten — This is rather a singular case. If the bankruptcy had been an English bankruptcy, the attachment, being uncompleted, would not have prevailed against the claim of the judicial factor or the trustee in bankruptcy. If the attachment, or the process in Scotland that corresponds more or less with attachment, had been pending there, the claim of the judicial factor or the trustee in bankruptcy must have succeeded. But, as it is, a creditor of the bankrupt having duly obtained an attachment in England before the date of the sequestration cannot, I think, be deprived of the fruits of his diligence. It may have been intended by the Legislature that bankruptcy in one part of the United Kingdom should produce the same consequences throughout the whole kingdom. But the Legislature has not said so. The Act does not say that a Scotch sequestration shall have effect in England as if it were an English bankruptcy of the same date. It only says that the courts of the different parts of the United Kingdom shall severally act in aid of, and be auxiliary to, each other in all matters of bankruptcy. The English Court, no doubt, is bound to carry out the orders of the Scottish Court, but in the absence of special enactment the Scottish Court can only claim the free assets of the bankrupt. It has no right to interfere with any process of an English Court pending at the time of the Scotch sequestration. It must take the assets of the bankrupt such as they were at that date and with all the liabilities to which they were then subject. The debt attached by the order
nisi was at the date of the sequestration earmarked for the purpose of answering a particular claim — a claim which in due course would have ripened into a right. With this inchoate right the Scottish Court had no power to interfere, nor has it even purported to do so. Therefore I think that the appeal fails.
Lord James of Hereford—I concur.
Lord Dunedin — I concur with the opinions which have been delivered. I think that the general principle which underlies every bankruptcy system is that after bankruptcy the bankrupt is no longer really the owner of his property, but holds it as trustee for the whole of his creditors for equal division. That carries with it necessarily the idea that some of his creditors may already have got security or may have taken part of the property in execution; and if the matter went no further than that, it is quite clear that both of those positions would be good as against the bankrupt himself, and consequently as against the rest of his creditors. It is a very natural development of that principle, in working out a bankruptcy system, that you should introduce a law of relation back, and that within a certain period, which will always be an arbitrary period determined by positive enactment, you should hold that the security given or the execution effected should have no effect, and that that property should be like the rest of the property of the bankrupt. Now, so far as the general principle is concerned, it is quite consistent with the comity of nations that it should be a rule of international law that if the Court finds that there is already pending a process of universal distribution of a bankrupt's effects it should not allow steps to be taken in its territory which would interfere with that process of universal distribution; and that I take to be the doctrine at the bottom of the cases of which
Goetze v. Adams (
cit. sup.) is only one example. But if you wish to extend that not only to the question of recognising a process of universal distribution, but also of introducing the law of relation back, then it seems to me that you get at once into rather great difficulties, because the question arises, According to which law will you apply the doctrine of relation back? If you take the law of the country of the bankruptcy, then the execution or security in question may be, and often is, of a kind which is quite foreign to the system of law which you are administering in the Bankruptcy Court.
Page: 701↓
If, on the other hand, you take the law of the country of the attachment, then you have to administer a law which is quite ignorant of the precise execution or security with which it has to deal. Accordingly, to say the least of it, there has been quoted to us no instance where as a question of international law a Court has applied the rule of relation back, and certainly there are dicta of Lord President Inglis which seem to point completely the other way. Of course that would not prevent the matter being dealt with in the United Kingdom by means of positive enactment. I need say no more as to that, because I entirely concur with what fell from the Lord Chancellor as to the true meaning of sections 117 and 118.
