Accountant In Bankruptcy Against Pauline Farrell Or Walker And The Lord Advocate
| Jurisdiction | Scotland |
| Judge | Lord Armstrong |
| Neutral Citation | [2017] CSOH 78 |
| Published date | 11 May 2017 |
| Court | Court of Session |
| Date | 11 May 2017 |
| Docket Number | A332/16 |
OUTER HOUSE, COURT OF SESSION
[2017] CSOH 78
A332/16
OPINION OF LORD ARMSTRONG
In the cause
ACCOUNTANT IN BANKRUPTCY
Pursuer
against
PAULINE FARRELL OR WALKER
Defender
and
THE LORD ADVOCATE
Minuter
Pursuer: Ower; Harper Macleod LLP
Defender: Clark; BLM
Minuter: O’Neill, Solicitor Advocate; Scottish Government Legal Directorate
11 May 2017
Introduction
[1] The pursuer is the trustee in the sequestration of John Gerard Walker (“the debtor”). The defender is the debtor’s former wife. This case raises inter alia the issue of whether the terms of section 34(4) of the Bankruptcy (Scotland) Act 1985 are ECHR compliant, and whether, in that regard, a declaration of incompatibility in terms of section 4(2) of the Human Rights Act 1998 should be made. In these circumstances, in accordance with section 5 of the 1998 Act and Chapter 82 of the Rules of the Court of Session, the minuter entered the process as a party to the proceedings representing the Scottish Ministers.
[2] At a procedure roll discussion, the pursuer insisted on her preliminary plea, challenging the relevance of the defender’s pleadings, and sought decree de plano.
The Facts
[3] The defender and the debtor married on 9 November 2007, and were divorced by decree dated 3 August 2010. The debtor was sequestrated on 1 April 2009, and the pursuer was appointed trustee on 11 May 2009. Prior to his sequestration, the debtor was the sole proprietor of a property at 1A Beechwood Avenue, Rutherglen. Around December 2007, that property was sold for £435,000. After deduction of an outstanding mortgage, and the costs of sale, the net free proceeds of sale were £178,723.82. The debtor mandated transfer to the defender of the sum of £172,895.25. In this action of payment by the pursuer, that is the sum sued for.
[4] The defender subsequently purchased property at 56 Picketlaw Farm Road, Carmunnock in her sole name. She avers that in contemplation of marriage, both she and the debtor sold their respective properties in order to purchase that property as a matrimonial home. She avers that the purchase price was £866,000 and that this was funded by (i) a mortgage of approximately £380,000, (ii) a contribution by the defender of approximately £313,000 from the sale of her property, and (iii) the sum of £172,895.25 which was transferred by the debtor to the defender as a gift in consequence of their marriage for use in the purchase of the matrimonial home. She avers that she and the debtor separated in January 2008, but that she has continued to reside at the property, together with her son and daughter, and has continued to pay the mortgage and to maintain the property without contribution from the debtor.
[5] The defender avers that the property has suffered a substantial fall in value since it was purchased, and is now valued at about £560,000. The sum due on the mortgage remains £380,000. She avers that if decree is granted in the sum sued for, this will result in a number of personal and financial consequences for her. In the first place, she would require to sell her home, and its diminution in value would mean that she would lose her contribution of £313,000. Secondly, she and her children would lose their family home with no means of buying or privately renting anther home. Thirdly, she avers that the sale of the property would not allow her to make payment of the full amount to the pursuer and she herself would be sequestrated.
The Pursuer’s Case
[6] The pursuer’s position is that the transfer of £172,895.25 was a gratuitous alienation by the debtor to the defender, and as such it is challengeable under section 34 of the Bankruptcy (Scotland) Act 1985. The debtor received no benefit from the transfer, which was made at a time when the debtor’s business accounts from February 2005 to March 2006 showed a loss of £7,411 and business assets to be substantially exceeded by liabilities. At the time of sequestration, the debtor considered that his liabilities amounted to £152,029. The pursuer seeks payment of the sum transferred to the defender in order to restore it to the estate of the debtor for the benefit of the general body of creditors.
The Defender’s Case
[7] The defender does not expressly dispute that the transfer of £172,895.25 was a gratuitous alienation. She does not seek to invoke any of the defences afforded by section 34(4). Her complaint is that the statutory defences to a challenge to a gratuitous alienation, set out in section 34(4), have no regard to the circumstances of the alienation, or to the reasonableness or proportionality of making the order sought, or to the personal or financial circumstances of the person against whom the order is sought. In this regard, she maintains that the provisions of section 34(4) are incompatible with the rights of the defender and her family under Articles 6, 8, 14, and Article 1 of the First Protocol (“A1P1”), of the European Convention on Human Rights. She maintains that section 34(4) can be read and given effect to in a way which is compatible with her Convention rights and those of her family, in terms of section 3(1) of the Human Rights Act 1998, by interpreting and applying the section in a way which permits the court to consider the circumstances of the person against whom an order is to be made, the reasonableness and proportionality of making the order sought, and where an order is appropriate, the nature and extent of any order to be made. In the alternative, she seeks a declaration of incompatibility.
The Submissions
[8] Each of the parties tendered written notes of argument which I have taken into account, together with the oral submissions made at the bar.
(i) Submissions for the Pursuer
[9] The defender’s case that the provisions of section 34(4) violated her Article 6 rights was misconceived. Article 6, which protected the defender’s right to a fair trial, was not engaged. It was admitted that the sum sought was transferred by the debtor to the defender as a gift, that the defender was an “associate” for the purposes of section 34, and that the transfer took place within five years of the debtor’s sequestration. In these circumstances, where none of the statutory defences were available to her, the defender’s concern was not with the fairness of the process for determining her substantive rights, but rather with the lack of a stateable statutory defence which reflected her circumstances. The defender’s case, in that respect, was in reality a challenge to the substantive content of section 34(4). No question of a breach of Article 6 arose.
[10] In relation to Article 8, the defender’s position was that the grant of decree in the pursuer’s favour would compel the sale of her home, which would constitute an interference in her family life and that of her dependent children. That argument too was misconceived. The case was an action for the payment of a sum of money, and nothing more. The pursuer was not seeking an order which would compel the defender to sell her home, or any other property to which she had title or interest. If decree was granted, it would be a matter for the defender as to how it was to be satisfied. If, following the grant of decree, its enforcement brought about the sequestration of the defender, then she would be entitled to the protection afforded by section 113(2) of the Bankruptcy (Scotland) Act 2016, which, effectively, re-enacted the provisions of section 40 of the 1985 Act. In such circumstances, the defender’s means and financial resources and other relevant circumstances would be taken into account. It did not follow that, as a consequence of the grant of decree for payment in this action, the defender would lose her home.
[11] In relation to Article 14, the defender’s position was that the extended period referable to gratuitous alienations in relation to the spouse of a debtor was discriminatory, in that, in terms of section 34(3)(a), the relevant period in respect of associates of the debtor was one of five years, rather than that of two years in respect of others. In that regard, however, Article 14 was not engaged. The defender averred only that the family, and thus the defender and her family, was a category of status protected by Article 14. She failed to specify the basis of discrimination on any grounds prohibited by Article 14. In any event, the definition of associates in section 74(2) of the 1985 Act included other categories of person who were not spouses of the debtor. Further, in the particular circumstances of this case, the transfer of the sum in question had, in fact, taken place within two years of the debtor’s sequestration.
[12] In relation to A1P1, the defender’s position was that decree for payment would interfere with her peaceful enjoyment of her possession, in the shape of her home. In that regard, it was to be noted that all that was sought by the pursuer was decree for payment of a sum of money. No order was being sought in respect of the defender’s home.
[13] In any event, the aims of section 34 were legitimate and struck a proper balance between the interests of a debtor’s creditors and those in the position of the defender. Its effect was reasonably proportionate to that aim. Any interference with the defender’s rights was proportionate and was necessary for the legitimate protection of the rights of others. Reference was made to David Johnston’s Trustee v Baird (2012) CSOH 117, in which Lord Uist had found section 34(4) to be compatible with A1P1 (paragraphs 21, 26).
[14] Section 34(4) included the following terms:
“On a challenge being brought under subsection (1) above, the court shall grant decree of reduction or for such restoration of property to the debtor’s estate or other redress as may be appropriate ...”
In anticipation of a submission by the defender as to how the phrase “or other redress” should be interpreted, it was submitted that the purpose of that specific provision had been...
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