Scottish Court of Session Decisions

At advising on 17th November 1955,—

LORD PRESIDENT (Clyde).—This appeal is concerned primarily with the nature of the right or interest of a bankrupt in his sequestrated estates during his sequestration. The case comes before us as an appeal by the bankrupt against an interlocutor of the Sheriff-substitute of the Lothians and Peebles at Edinburgh, who granted decree, inter alia, summarily ejecting the bankrupt Mr A. C. B. Stevenson and his wife from the Hatton Estate, Kirknewton, Midlothian.

[His Lordship gave the narrative quoted supra, and continued]—The first and the main question is whether the action of ejection by the pursuers was competent. To determine this, the position as at 11th January 1955 must be considered, for, if the action was not competent when it was raised, subsequent events could not make it so. It is well settled that an action of ejection is only competent if the defender's possession of the subjects is violent, fraudulent or precarious—Lowe v. Gardiner, per Lord President Clyde at p. 215. In the present case the pursuers maintain that the bankrupt's possession is precarious. It is therefore necessary to consider the nature of the bankrupt's rights in the property at 11th January 1955 to see whether his possession of the subjects was then precarious. For upon that the competency of the action depends.

Under section 97 of the Bankruptcy (Scotland) Act, 1913, the act and warrant in favour of the trustee in bankruptcy transfers to and vests in him for behoof of the creditors absolutely and irredeemably as at the date of the sequestration, with all right, title and interest, the whole property of the debtor. "Property" is defined in section 2 as including "every kind of property, heritable or moveable,…and all rights, powers, and interests therein capable of legal or voluntary alienation." Moreover, section 97 (2) provides that the whole heritable estate belonging to the bankrupt in Scotland vests in the trustee to the same effect as if a decree of adjudication in implement of sale, as well as a decree of adjudication for payment and in security of debt, subject to no legal reversion, had been pronounced in favour of the trustee and recorded at the date of the sequestration.

In my opinion, the consequence of the act and warrant was to vest in the trustee the whole rights of the bankrupt in Lot 1 and to reduce him to the position of a squatter in that property without any right or title to remain there. The essential objects of the Bankruptcy Act would be defeated upon any other view, for the essence of a sequestration is to make the whole estates of the bankrupt available for his creditors according to their several rights and preferences through the medium of the trustee. If a bankrupt could at will continue to occupy any part of the property which vests in his trustee, this would defeat the whole object of the Act. The comprehensive interpretation which the all-embracing words of section 97 must be given is confirmed by the provisions of other sections in the Act. For instance, section 76 enables the trustee to take possession of the bankrupt's estate, section 78 requires him to manage, realise and recover the estate belonging to the bankrupt, wherever situated, and section 77 requires the bankrupt to give every assistance necessary to enable the trustee to execute his duty, and, if the bankrupt fails to do so, the trustee may apply to the Sheriff to compel him.

It was, however, maintained for the bankrupt that his sequestration did not wholly divest him of all rights in his estates, and the right which he retained prevented his occupation of the mansion-house from being precarious. This contention was primarily based on a passage from Lord Deas's opinion in Dobie v. Marquis of Lothian (1864) 2 M 788 , at p. 800, which is as follows:

"But it is essential to observe that, as in a question with the bankrupt, the right of the trustee was not an absolute right to any part of the bankrupt estate, but a right in security merely … The right of reversion remained in the bankrupt, and he had, moreover, in the meantime, an interest to have his debts paid."

Lord Deas, however, was delivering a dissenting opinion in a whole Court case. He disagreed with the opinion delivered by eight consulted Judges, who at page 797 expressed the contrary view that "when, as in the present case, the question is between a sequestrated bankrupt and his creditors, we think it clear that the bankrupt cannot be heard to state an objection to the title of the trustee to any part of his estate, the whole of which he is bound to give up for payment of his debts." In my opinion, this correctly represents the legal position. I do not regard the right of a trustee in bankruptcy as merely a right in security, and I decline to accept the restricted effect which Lord Deas sought to give to a sequestration.

The matter can best be illustrated by a consideration of the circumstances of the present case. The trustee's right in regard to Lot 1 was something far more than a mere right in security. By his act and warrant he obtained the equivalent of a recorded decree of adjudication over Lot 1, and this attached in his favour even the right to redeem the property which had previously been in the first defender—Graham Stewart on Diligence, p. 601. This right cannot return to the bankrupt before the trustee's discharge. As Lord President Inglis said in Whyte v. Murray, at p. 98, "The discharge of the trustee puts an end to the adjudication in his favour, which transferred to him the estate of every description which belonged to the bankrupt." The contention, therefore, for the bankrupt, based upon Lord Deas's opinion in Dobie v. Marquis of Lothian, must fail.

Alternatively it was contended that, even if the trustee's right was something more than a right in security, nevertheless the bankrupt did retain a radical right in the estate, and in particular in Lot 1, which prevented his possession from being precarious. But this involves a complete misapprehension as to the nature of this radical right. A sequestration is for a limited and temporary purpose: it does not necessarily involve the final and irrevocable separation of the bankrupt and his estate or the proceeds thereof. It is therefore well settled that the bankrupt has an inherent or radical right regarding his estate—Ersk. Prin., (21st ed.) p. 676; Mackenzie v. Smith, Lord Jerviswoode at p. 1203. But, apart from some asset which is abandoned by the trustee (and no question of that kind arises in the present case), this radical right of the bankrupt in his estate is a dormant and unenforceable right until the trustee is discharged. Even then it can only be asserted by an action of count and reckoning for the proceeds of his estate—Goudy on Bankruptcy, p. 364; Wallace on Bankruptcy, p. 180. Moreover, in a question with his trustee the bankrupt cannot claim any particular part of his estate on the termination of the sequestration, or any particular heritable property. He can only ask for what is left over in the hands of the trustee after the creditors' claims are met. Clearly, therefore, a radical right of this nature can form no basis for the contention that the bankrupt's possession or occupation of Lot 1 was not precarious. For the right in question cannot be enforced against the trustee prior to his discharge and, in any event, is merely a right to an accounting for a balance of the bankrupt's estate, not a right in or to a specific piece of heritable property.

In these circumstances, therefore, while the sequestration is in operation and the trustee undischarged, the bankrupt has no right of any kind to occupy nor possess nor deal in any way with the heritable property referred to as Lot 1, and his continued occupation of it was thus purely precarious when the action began. In these circumstances the ejection is clearly competent.

But, if this be sound, then the whole of the defence to the present action would be irrelevant, for throughout the time the action has been in Court nothing has happened to alter the precariousness of the defender's occupation of the subjects. He sought to maintain that he cannot be excluded from Lot 1 except for a valid reason, and he put forward a series of criticisms as to the validity of the agreement to sell the subjects to Mr Wyllie, an agreement which has been completed while the present proceedings were pending in Court. I am not persuaded that there was any substance in these criticisms, but it is unnecessary to examine this matter further, since, in my view, they are in any event irrelevant. If the trustee has the right to decide to exclude the bankrupt from occupying or possessing any part of the estate included in the sequestration and if the bankrupt cannot gainsay his decision, as I hold to be the position in law, then it is in vain for the bankrupt to criticise the steps which the trustee has taken to dispose of the Estate and to put such criticism forward as a defence to an ejection action by the trustee. For, however well founded his criticism may be, it could never entitle the bankrupt to continue in occupation. He can only do so with the consent and approval of the trustee. The defence to the present action is in any event, therefore, in my opinion, irrelevant.

Finally it was argued that we should at least sist the ejection process pending the raising by the bankrupt of an action of reduction of the Accountant of Court's concurrence in the sale. I see no justification for such a course. Even if the Accountant, of Court's concurrence were reduced, this would confer no right of occupation on the bankrupt, whose possession of the heritage would still be precarious; and in any event there are in the pleadings in this case no averments of a case upon record which would justify our listing this action for such a purpose.

On the whole matter, therefore, in my opinion, the interlocutor of the Sheriff-substitute should be affirmed.

LORD CARMONT .—I agree.

LORD RUSSELL .—I agree.