Kenneth Wilson Pattulo V. Elizabeth Jane Mcareavey
| Jurisdiction | Scotland |
| Judge | Sheriff W. Holligan |
| Court | Sheriff Court |
| Date | 12 April 2010 |
| Docket Number | SQ110/05 |
| Published date | 22 April 2010 |
SHERIFFDOM OF LOTHIAN AND BORDERS AT EDINBURGH
Case No: SQ110/05
| NOTE by SHERIFF WILLIAM HOLLIGAN in the Note of Appeal by KENNETH WILSON PATTULLO, Insolvency Practitioner, Begbies Traynor, 3rd Floor Finlay House 10/14 West Nile Street, Glasgow G1 2PP Appellant in the sequestration of ELIZABETH JANE McAREAVEY, residing at Drylaw House, 32 Groathill Road North, Edinburgh, EH4 2SL |
Appellant :Graham
Respondent (Accountant in Bankruptcy): Lloyd
Edinburgh, 12th April 2010
The sheriff having resumed consideration of the appeal, refuses the same; Reserves all questions of the expenses of the appeal and assigns 28th April 2010 at 9.30am in the Sheriff Court 27 Chambers Street, Edinburgh as a diet in relation thereto.
[1] This is an appeal brought pursuant to section 49(6) of the Bankruptcy (Scotland) Act 1985 ("the 1985 Act"). The appellant was appointed trustee on the estates of the debtor in or about 11th August 2004 in terms of a trust deed for creditors ("the trust deed"). The estates of the debtor were sequestrated pursuant to the 1985 Act in or about 6th April 2005. The Accountant in Bankruptcy was appointed permanent trustee on 20th June 2005. The Accountant in Bankruptcy appointed Mr David Rutherford CA to be her agent. In this Note, I shall refer to the trustee appointed pursuant to the trust deed as "the appellant"; the respondent as "the AIB"; and Mr Rutherford as "the agent".
[2] There is no dispute between the parties as to the material facts. They are set out in a joint minute of admissions. It is unnecessary for me to record all that is set out in the joint minute for the purposes of this Note. I refer only to the relevant parts thereof. In his submission, Mr Graham began to develop an argument as to whether the trust deed was a protected trust deed in terms of the provisions of Schedule 5 to the 1985 Act then in force (now amended by the Bankruptcy and Diligence (Scotland) Act 2007). However, Mr Lloyd conceded, at least for the purposes of the argument before me, that the trust deed was a protected trust deed. Both parties were content that I should proceed on the basis that it was.
[3] It was submitted that the effect of the award of sequestration was, for all practical purposes, to bring to an end to the power of the appellant to intromit with the bankrupt's estate. Whether he thought the sequestration ought to have been granted or not, the appellant had no funds to challenge it. I was told that the appellant had commenced proceedings to challenge an alleged gratuitous alienation of part of her estate by the debtor but that these proceedings had not come to a conclusion at the date of the sequestration.
[4] The appellant submitted a claim in the sequestration in the sum of £25, 909.42 ("the claim"). The claim relates to fees and outlays incurred by the appellant in the performance of his duties as trustee under the trust deed. The agent has, in circumstances to which I will refer, adjudicated upon the claim. He has admitted the whole claim to an ordinary ranking in the sequestration. The appellant says that the claim should be admitted to a preferential ranking.
The Issues
[5] There are two issues in this appeal: (1) was the appeal lodged timeously; (2) what is the correct ranking of the claim?
[6] The first issue relates to what I will call the time bar issue. As I have said, the appeal is brought pursuant to section 49 of the 1985 Act. I will refer to these provisions in detail later in this Note. It was accepted that, for the purposes of determining the relevant time limit, the provisions of section 49(6)(b) apply. Read short, they provide that an appeal to the sheriff must be made not later than two weeks before the end of the accounting period. Section 52 deals with accounting periods. It was also a matter of agreement that the duration of a relevant accounting period at the material time was six months. I will also return to this.
[7] Put shortly, the agent says that he adjudicated upon the appellant's claim and dealt with it by letter dated 8 November 2007. The terms of that letter are as follows:-
"I refer to previous correspondence and in particular to your claim for £25,909.42 in the above insolvency.
I have ingathered the estate's interest in the debtor's heritable property and I am in a position to pay a first and final dividend to ordinary creditors. I advise that I have adjudicated upon your claim, and I enclose a full list of adjudicated ordinary and preferential claims.
Any creditor may, if dissatisfied with the acceptance or rejection of any claim, appeal to the court within two weeks of that acceptance or rejection (section 49(6) Bankruptcy (Scotland) Act 1985 as amended refers). Thereafter I will pay a dividend to creditors and seek my Discharge as his (sic) Trustee".
Annexed to this letter is a list of claims headed "Unsecured Creditor Claims Agreed". Item 2 of that list includes the claim. The relevant accounting period ended on 5th April 2008. The present appeal was not lodged until 31st July 2009. It is said that the appeal is thus time barred.
[8] In support of his submission that the claim was not time barred, Mr Graham referred to various items of correspondence copies of which were lodged in process and the terms thereof undisputed. In particular, Mr Graham referred to a letter from the agent to the appellant dated 22nd July 2009. The relevant paragraph thereof says:-
"I confirm that every creditor has returned their acceptance but yours. I now give you a final opportunity to return your acceptance to(sic) the dividend within 14 days of receipt of this letter. If you fail to do this or insist on your quasi lien over an unprotected Trust Deed (as verified by the Accountant in Bankruptcy), I will assume you are formally appealing my adjudication to the Sheriff at Edinburgh. I will therefore seek confirmation from the Accountant in Bankruptcy that they(sic) will meet my costs of attending the Court."
That letter came, I was told, at the end of a protracted correspondence between the parties. By letter dated 2nd October 2008, the AIB wrote to the appellant in the following terms:-
"Mr Rutherford is reluctant to enter into a legal battle with another Insolvency Practitioner and has asked for the Accountant's advice on how to advance this matter, with a view to finalising the case.
We are aware that you are regulated by the Insolvency Practitioners Association (IPA). With your permission we intend to write to the IPA and seek a decision on this case. David Rutherford has agreed to this course of action, and to abide by any decision the IPA reach(sic). I can confirm to you that the Accountant in Bankruptcy would also abide by any decision given.
The proposed action would hopefully allow us to resolve the situation without any party having to resort to legal action."
I was informed that a reference was made to the Insolvency Practitioners Association in an effort to resolve matters. However, the Association declined to become involved as mediator, taking the view that there was a statutory mechanism for resolving disputes between the parties.
[9] In the course of his submission, Mr Graham said that the adjudication of 8th November 2007 was "vitiated" by the subsequent actings of the AIB in the correspondence, particular by reference to mediation and the "final adjudication letter" of 22nd July 2009. The AIB was now acting in bad faith by relying on a strict application of the statutory timetable. The AIB could not encourage a non-judicial resolution and then, at a later point, insist upon the time limit. Mr Graham said that the AIB had waived the right to object to the competency of the appeal. Furthermore, the appellant did not know and was not told when the relevant accounting period ended.
[10] Mr Lloyd submitted that the time limits set out in section 49(6) are prescriptive and fell to be applied in this appeal. The date of the sequestration was 6th April 2005. The relevant accounting periods commenced in April and October. The adjudication was dated 8th November 2007. The appellant therefore had within two weeks before the end of the accounting period in April 2008 within which to appeal. He did not do so and could not now maintain the appeal. On a practical level, the mechanism set out in the 1985 Act made sense. Both the debtor and the creditor may appeal. An adjudication was made by reference to a particular accounting period and the funds held at that time. It was important to uphold the relevant statutory framework. If the appellant's argument was one of personal bar then, to succeed, there needed to be actings which occurred before the time limit expired which entitled the appellant to believe that the time limit would not be insisted upon. In this case, the correspondence all post dates the point by which the time limit had expired. Mr Lloyd submitted that the court has no power to extend the time limit contained within section 49(6). Section 63 of the 1985 Act would not be available to the appellant if he prayed it in aid. On that argument, Mr Lloyd did accept that all the parties, including both the agent and the AIB, were wrong in entering into the correspondence as to resolution of the issue by other means because neither they nor the court could vary or extend the already expired time limit prescribed by the 1985 Act.
The second issue
[11] In support of his submission that the appellant should be admitted to a preferential, and not just an ordinary, ranking. Mr Graham referred me to the following authorities: Thomson v Tough's Trustee (1880) 7 R 1035; Salaman v Rosslyn's Trustees (1900) 3 F 298; Mess V Hay (1898) 1 F (HL) 22; Miln's Judicial Factor v Spence's Trustees 1927 SLT 425; McBryde, Bankruptcy (2nd edition) para 20-75; Goudy, The Law of Bankruptcy page 487. Mr Graham submitted that the actings of the appellant had been directed at benefiting the general body of creditors. The appellant should not be treated as a "mere...
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