Reclaiming Motions By William Cleghorn As Trustee On The Sequestration Of Mark Fortune Against Medwin Investments Limited And Cooper Watson Limited
| Jurisdiction | Scotland |
| Judge | Lord Bracadale,Lord Malcolm,Lord Justice Clerk |
| Judgment Date | 01 July 2016 |
| Neutral Citation | [2016] CSIH 49 |
| Date | 01 July 2016 |
| Docket Number | CA29/15 |
| Court | Court of Session |
| Published date | 01 July 2016 |
SECOND DIVISION, INNER HOUSE, COURT OF SESSION
[2016] CSIH 49
CA29/15
CA30/15
Lord Justice Clerk
Lord Bracadale
Lord Malcolm
OPINION OF LADY DORRIAN, the LORD JUSTICE CLERK
in the RECLAIMING MOTIONS
by
WILLIAM CLEGHORN AS TRUSTEE ON THE SEQUESTRATION OF MARK FORTUNE
Pursuer and respondent;
against
MEDWIN INVESTMENTS LIMITED
Defenders and reclaimers:
and
WILLIAM CLEGHORN AS TRUSTEE ON THE SEQUESTRATION OF MARK FORTUNE
Pursuer and respondent;
against
COOPER WATSON LIMITED
Defenders and reclaimers:
Act: J Cormack, sol adv; Pinsent Masons
Alt: D MacLean; Aitken Nairn, WS
1 July 2016
Introduction
[1] These reclaiming motions arise out of the grant by a discharged bankrupt to the reclaimers of a number of dispositions and standard securities of property forming part of his sequestrated estate. They concern the effect of (an unexplained) failure to record the sheriff’s warrant to cite in the register of inhibitions and adjudications in terms of sec. 14(1)(a) of the Bankruptcy (Scotland) Act 1985; whether the deeds granted by the bankrupt attracted the protection of sec. 44(4)(c) of the Conveyancing (Scotland) Act 1924; and whether the rule against “offside goals” (Rodger (Builders) Ltd v Fawdry 1950 SC 483) was engaged.
[2] The respondent sought production and reduction of the dispositions and standard securities. After debate, the Lord Ordinary by interlocutors dated 8 December 2015 granted the orders sought by the respondent in relation to all deeds save on in the Cooper Watson action, where there remains an outstanding issue that the property to which the deed relates may qualify as the debtor’s family home under sec. 39A of the 1985 Act. Those are the interlocutors reclaimed against.
Legislation
[3] At the relevant time, sec. 12(2) of the 1985 Act provided:
“Where a petition for sequestration of a debtor’s estate is presented by a creditor … , the sheriff to whom the petition is presented shall grant warrant to cite the debtor to appear before him on such date as shall be specified in the warrant, being a date not less than 6 nor more than 14 days after the date of citation, to show cause why sequestration should not be awarded”.
[4] Sec. 14 of that Act provides:
“(1) The sheriff clerk shall forthwith after the date of sequestration send –
(a) a certified copy of the order of the sheriff granting warrant under section 12(2) of this Act to the keeper of the register of inhibitions and adjudications for recording in that register …
(2) Recording under subsection (1)(a) … above shall have the effect as from the date of sequestration of an inhibition and of a citation in an adjudication of the debtor’s heritable estate at the instance of the creditors who subsequently have claims in the sequestration accepted under section 49 of this Act.
(3) The effect mentioned in subsection (2) above shall expire –
…
- … at the end of the period of 3 years beginning with the date of sequestration.
(4) The trustee may, if not discharged, send a memorandum in a form prescribed by the Court of Session by act of sederunt to the Keeper of the Register of Inhibitions for recording in that register before the expiry of—
(a) the period of 3 years mentioned in subsection (3)(b), or
(b) a period for which the effect mentioned in subsection (2) has been renewed by virtue of subsection (4A).
(4A) The recording of a memorandum sent in accordance with subsection (4) renews the effect mentioned in subsection (2) for a period of 3 years beginning with the expiry of—
(a) the period mentioned in subsection (3)(b), or
(b) as the case may be, the period mentioned in subsection (4)(b).”
[5] Sec. 31(1), so far as material, provides:
“… the whole estate of the debtor shall, by virtue of the trustee’s appointment, vest in the trustee as at the date of sequestration for the benefit of the creditors …”.
[6] So far as material, sec. 32(8) provides:
“… any dealing of or with the debtor relating to his estate vested in the trustee … shall be of no effect in a question with the trustee”.
[7] Sec. 63 provides:
“(1) The sheriff may, on the application of any person having an interest –
(a) If there has been a failure to comply with any requirement of this Act …, make an order waiving any such failure and, so far as practicable, restoring any person prejudiced by the failure to the position he would have been in but for the failure;
(b) If for any reason anything required or authorised to be done in, or in connection with, the sequestration process cannot be done, make such order as may be necessary to enable that thing to be done.
(1A) An order under subsection (1) may waive a failure to comply with a requirement in section 63A(1)(a) or (b) only if the failure relates to –
(a) a document to be lodged with the sheriff,
(b) A document issued by the sheriff, or
(c) A time limit specified in relation to proceedings before the sheriff or a document relating to those proceedings…”.
[8] Sec. 44(4)(c) of the 1924 Act provides:
“No deed, decree, instrument or writing granted or expede by a person whose estates have been sequestrated under … the Bankruptcy (Scotland) Act 1985 … relative to any land … belonging to such person at the date of such sequestration … shall be challengeable or denied effect on the ground of such sequestration if such deed, decree, instrument or writing shall have been granted or expede, or shall have come into operation at a date when the effect of recording … (b) under subsection 1(a) of section 14 of the Bankruptcy (Scotland) Act 1985 the certified copy of an order shall have expired by subsection 3 of that section, unless the trustees in such sequestration shall before the recording of such deed, decree, instrument or writing in the appropriate Register of Sasines have completed his title to such land … by recording the same in such register or have recorded a memorandum in such register in the form provided by Schedule O to this Act”.
Background
[9] The respondent was appointed trustee on the sequestrated estate of Mark Edward Fortune (“the debtor”) on 7 February 2011. By virtue of that appointment, the debtor’s whole estate vested in the respondent for the benefit of creditors as at 24 December 2010. However, no certified copy of the warrant to cite was recorded in the register of inhibitions and adjudications in terms of sec. 14(1) of the 1985 Act. Parties were not able to explain what had happened in that regard. The debtor was discharged on 24 December 2011, but his trustee continued in office. At all material times the reclaimers were aware of this. The failure to record the warrant to cite came to light only on 10 December 2013, when the respondent sought to record a memorandum for extension of the period in terms of sec. 14(4).
[10] On 6 February 2014, the sheriff, having heard an application for relief under sec. 63 of the 1985 Act, pronounced an interlocutor allowing the warrant to cite to be amended regarding the address of the debtor and ordaining the sheriff clerk to intimate to the keeper of the register of inhibitions and adjudications certified copies of the interlocutors dated 24 December 2011 and 6 February 2014 “reserving to pronounce further”. On 11 February 2014, the keeper recorded the interlocutors dated 24 December 2011 and 6 February 2014.
[11] On various dates in March and April 2014, whilst his estate continued to be vested in his trustee, the debtor granted a number of dispositions and standard securities in favour of the reclaimers. All of the various deeds were registered after the expiry of three years from the date of sequestration. The respondent had not completed title to the debtor’s estate.
[12] On 12 May 2014, the sheriff pronounced a further interlocutor authorising the keeper to record the certified copy of the order of 24 December 2010 (although the keeper had already done so) and ordained the sheriff clerk to send to the keeper the trustee’s memorandum in terms of sec. 14(4) for recording and the keeper to record it, notwithstanding the expiry of the period of 3 years from the date of sequestration.
[13] Before the Lord Ordinary, the reclaimers sought dismissal of the action. They submitted (i) that the properties were no longer vested in the trustee when the dispositions had been registered, three years having expired after the date of sequestration without the trustee having completed title thereto; and (ii) that the deeds granted by the debtor were protected from challenge on the basis of section 44(4)(c).
[14] The respondent submitted that the sheriff’s interlocutor of 6 February had not authorised recording of the warrant, which was only authorised by his interlocutor of 12 May. Accordingly, the three year period relied upon by the reclaimers had never started to run. Since the certified copy of the granting warrant to cite had not been recorded prior to the challenged deeds being registered, it could not have expired by the date of registration of the challenged deeds. Further, the reclaimers knew of the debtor's sequestration when the deeds had been executed in their favour. Since they were in bad faith the “offside goals” rule applied and the deeds were not protected by sec. 44(4)(c).
The Lord Ordinary’s opinion
[15] The Lord Ordinary rejected the argument that the properties were no longer vested in the trustee at the time of the relevant dispositions. What he described as “the prohibitory effect”, under section 14, of recording the warrant to cite, expired after three years. However, there could be no effect unless and until the certified copy had been recorded. A debtor’s deed could only attract the protection of section 44(4)(c) where the prohibitory effect had both commenced and expired.
[16] Although it might not have accorded with the sheriff's intention, the certified copy order had been recorded on 11 February 2014, thus the prohibitory effect of the recording had expired when the impugned deeds had been recorded in...
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