Alison Donnelly Against The Royal Bank Of Scotland Plc
| Jurisdiction | Scotland |
| Judge | Sheriff S Reid |
| Neutral Citation | [2016] SC GLA 13 |
| Court | Sheriff Court |
| Date | 11 February 2016 |
| Docket Number | CA115/14 |
| Published date | 23 February 2016 |
SHERIFFDOM OF GLASGOW AND STRATHKELVIN AT GLASGOW
[2016] SC GLA 13
CA115/14
JUDGMENT OF SHERIFF S REID, Esq
In the cause
ALISON DONNELLY
Pursuer;
Against
THE ROYAL BANK OF SCOTLAND PLC
Defender:
Act: M Upton, Advocate; Friels, Uddingston
Alt: D Thomson, Advocate; Pinsent Masons LLP, Glasgow
GLASGOW, 11 February 2016.
The sheriff, having resumed consideration of the cause, Repels the defender’s fifth plea-in-law due to want of insistence; in terms of ordinary cause rules 40.3, 40.14 & 40.16, Sustains, in part, the defender’s first plea-in-law and Finds that the pursuer’s averments anent (i) the nature of the defender’s obligations to the pursuer, (ii) the date upon, and mechanism by, which the defender’s obligations to the pursuer came into existence, (iii) the alleged effect of the discharge of the pursuer from her trust deed, (iv) the alleged operation of prescription, and (v) the alleged non-application of the principle of the balancing of accounts in bankruptcy, are irrelevant; Repels the pursuer’s first and fifth pleas-in-law; Reserves the issue of expenses meantime; Assigns Monday 22 February 2016 at 9.45am as a case management conference to determine further procedure and the question of expenses, said hearing to proceed by way of telephone conference call before Sheriff Reid.
SHERIFF
NOTE:
Summary
[1] This commercial action raises a number of interesting and novel issues, including the extent of a creditor’s right of set-off in insolvency, the effect on creditors’ claims of the discharge of a debtor from a personal insolvency process, and the proper legal classification of a complaint or claim by a customer concerning the alleged mis‑selling of payment protection insurance (“a PPI claim”).
[2] At first glance the action appears unremarkable.
[3] The pursuer sues for payment of three liquid sums totalling £10,815.76. There is no dispute that the defender agreed to pay these sums in settlement of three PPI claims by the pursuer against the defender. The parties’ agreements are recorded in three written contracts, in simple and broadly similar terms, signed in February and March 2014 (“the PPI agreements”).
[4] But the defender now refuses to pay.
[5] The defender argues that it is entitled to withhold payment of the three liquid sums and to set them off against a greater alleged indebtedness (of £21,617.42) said to be due by the pursuer to the defender under contracts of loan between the parties entered into many years earlier, between 1997 and 2003.
[6] Pausing there, it may be thought that the defender is seeking to rely upon a right of compensation, or set-off, under the Compensation Act 1592. But that is not the defender’s position.
[7] The interesting complication in the present case is that in the intervening period, between the dates of the contracts of loan and related PPI sales (in 1997 and 2003) and the dates of the PPI agreements (in 2014), the pursuer became insolvent. She granted a trust deed in favour of her creditors in 2006.
[8] To add further twists to the tale, the defender submitted claims in the trust deed for payment of roughly the same aggregate indebtedness now founded upon by way of set‑off; those claims were adjudicated upon by the pursuer’s trustee and the defender received payment of dividends on the claims; and, in 2012, the pursuer was discharged from the trust deed.
[9] The defender’s primary position is that it is entitled to plead set-off by application of the principle of the balancing of accounts in bankruptcy.
[10] The pursuer disputes the application of any such insolvency set‑off. She argues inter alia that the principle of the balancing of accounts in bankruptcy has no application because she is no longer in bankruptcy (having been discharged from the trust deed); that the effect of that discharge is to extinguish any obligation she may have had to pay any outstanding loan balance due to the defender at the date of her insolvency; that, even if the pursuer’s discharge did not extinguish her indebtedness to the defender, any obligation to the defender under the loan contracts was extinguished by operation of prescription (the defender’s claim in the trust deed not having been renewed periodically); and that the debt sought to be enforced by her, being a post‑insolvency debt which first arose after the date of her insolvency under the PPI agreements in 2014, cannot be set-off against the pre‑insolvency obligations founded upon by the defender under the loan agreements dating back to the period from 1997 to 2003.
[11] In my judgment, the defender is entitled to plead set‑off. Specifically, I have concluded inter alia that (i) absent a discharge on composition, the mere discharge of the pursuer from the trust deed does not have effect to extinguish any obligation owed by the pursuer to the defender to pay the unsatisfied balance due under the pre-insolvency contracts of loan; (ii) upon a proper analysis, the indebtedness now sought to be enforced by the pursuer against the defender has its source and origin in a contingent obligation that was in existence prior to the date of the pursuer’s insolvency; (iii) as a result, the pursuer’s correlative right to enforce that contingent obligation properly falls within, and forms part of, the pursuer’s insolvent estate under her trust deed; (iv) the contingencies attaching to the defender’s obligation were purified, post-insolvency, by the pursuer submitting complaints to the defender regarding the PPI sales and by the defender determining those complaints in favour of the pursuer; (v) the effect of the PPI agreements themselves was merely to ascertain the present value of the pre-insolvency contingent obligation by the defender; (vi) while the pursuer has title to sue for payment of that newly ascertained and newly non‑contingent indebtedness, she does so as constructive trustee for the benefit of her creditors under the trust deed; (vii) to the extent that there is a greater extant contra‑indebtedness owed by the pursuer to the defender under the pre‑insolvency contracts of loan, the defender is entitled to set it off against the defender’s newly ascertained and newly non‑contingent indebtedness to the insolvent estate, by virtue of the principle of the balancing of accounts in bankruptcy; and, lastly, (viii) the pursuer’s obligations to repay any sums due to the defender under the contracts of loan have not prescribed because the defender’s acts in submitting claims to the trustee under the trust deed for implement of those obligations constitute “relevant claims” for the payment of those debts, in terms of the Prescription & Limitation (Scotland) Act 1973, section 9(1)(c); and those claims have effect continuously to interrupt or suspend the operation of the applicable five‑year prescriptive period, for as long as the claims subsist before the trustee, until such time as the claims are finally adjudicated upon and accepted by the trustee.
Factual background
[12] Between 1997 and 2003, the pursuer borrowed sums of money from the defender. In connection with those loans, the pursuer was allegedly mis‑sold payment protection insurance (“PPI”). The averments do not disclose the precise dates or amounts of the loans, or the date(s) of demand for repayment, or the date(s) on which the pursuer’s PPI claims were first made.
[13] On 29 August 2006 the pursuer executed a trust deed for behoof of her creditors.
[14] On 24 October 2006, the trust deed became a protected trust deed.
[15] On 20 September 2006, 25 September 2006 and 2 October 2006, the defender submitted claims to the pursuer’s trustee representing the balances due under the loans made by the defender to the pursuer.
[16] On 11 December 2013 the pursuer was discharged from the trust deed.
[17] On 31 December 2013 the defender received payment from the trustee of a dividend in respect of its three claims on the trust estate.
[18] On 21 & 26 February, 4 & 8 March, and 6 & 10 March, all in 2014, the parties concluded three agreements (“the PPI agreements”) in terms of which the defender offered to pay, and the pursuer accepted, three sums totalling £11,927.39 in full and final settlement of, in short, all and any PPI claims that may be competent to her relating to the loans. Two of these agreements expressly provide that payment of the settlement sums would take into account any “arrears” the pursuer may have with the defender. The third agreement makes no such express provision.
[19] The defender subsequently paid the sum of £1,111.63 to the defender, leaving a balance of £10,815.76 due under the PPI agreements. The defender avers that the sum of £1,111.63 was paid in error.
[20] On 7 August 2014 the pursuer served the present action upon the defender seeking payment of the balance allegedly due under the PPI agreements. The defender pleads a right to set‑off the sum sued for against a greater alleged indebtedness due by the pursuer under the pre‑insolvency loan contracts.
[21] Having heard submissions at debate, I reserved judgment.
Submissions for the defender
[22] By way of preliminary comment, it should be observed that certain differences are discernible in the defender’s stated positions in the pleadings, the defender’s first note of arguments (no. 17 of process) (lodged on 17 November 2014), and the defender’s supplementary note of arguments.
[23] In the pleadings, the defender’s position is three-pronged: (i) first, that set off operates “contractually” (Answer 2); (ii) second, esto there is no “contractual agreement on set-off”, nevertheless set‑off operates by virtue of the balancing of accounts in bankruptcy (Answer 2; defender’s second plea-in-law); and (ii) third, in any event (on some unspecified basis) the defender is entitled to set-off the arrears owed to it against the balance of the sum payable under the PPI agreements (Answer 2, final sentence; defender’s third plea-in-law).
[24] In its first note of...
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