Accountant In Bankruptcy v. Butler [2005] ScotSC 78 (03 November 2005)

BAILII is celebrating 24 years of free online access to the law! Would you consider making a contribution?
No donation is too small. If every visitor before 31 December gives just £1, it will have a significant impact on BAILII's ability to continue providing free access to the law.
Thank you very much for your support!

The Sheriff having resumed consideration of the cause Repels the Defender's pleas in law numbers one and two; Appoints the cause to call on the Procedure Roll on 28 November 2005 at 10.00 am and Appoints that day as a Hearing on expenses.

This case came before me for Debate on the Defender's first and second pleas in law directed to the competence of the action for declarator by the Pursuer and the relevancy and specification of the Pursuer's pleadings, which, it is stated, should prevent the action being remitted to probation. The Pursuer was represented by Mr Gordon, solicitor and the Defender by Mr Lynch, solicitor.

Parties were agreed that the point at issue was novel in that neither solicitor had been able to find and thereafter tender to the Court any authority directly on the point arising in the present case.

Before dealing with parties' submissions, it is instructive to set out the factual position which is agreed on record.

On 12 November 2003 at Kilmarnock Sheriff Court the Royal Bank of Scotland obtained a decree against an entity called HB Engineering. Subsequently a petition for sequestration of HB Engineering was lodged at the instance of the Royal Bank of Scotland and sequestration was granted at Kilmarnock on 5 May 2004, and on that date the Pursuer was appointed trustee in the sequestration of the estate of HB Engineering. It was further admitted on record by the Defender that HB Engineering was the trading style employed by Peter Butler (the present Defender). Further that the true debtor in respect of the decree upon which the sequestration was based was the Defender.

The issues really in dispute for the purposes of this debate, are whether if Peter Butler and HB Engineering are one and the same, the Pursuer is entitled to declarator to that effect and to obtain consequential declarator that the estates of Peter Butler were sequestrated on 5 August 2004 and that the Pursuer, in terms of deliverance of 5 May 2004 is the interim trustee of the present Defender.

The Defender disputes that the declarators sought are competent and argues principally that the sequestration proceedings are inept and cannot be cured.

Mr Lynch drew my attention to the terms of Rule 5.7 of the Ordinary Cause Rules which provides:-

Mr Lynch conceded that the original decree in the Sheriff Court against HB Engineering at the instance of the Royal Bank of Scotland could have been used to petition the Court to award sequestration of the present Defender, Mr Peter Butler, trading as HB Engineering. However, he submitted, this is not what had occurred. In this case the sequestration had proceeded against HB Engineering.

In Mr Lynch's submission, sequestration was not a diligence. In that regard Mr Lynch referred to the Stair Memorial Encyclopaedia Volume 8 Paragraph 106 which reads "Diligence must be distinguished from sequestration and also from the insolvency processes applicable to companies ... ..." and to footnote one thereof which reads "However sequestration and liquidation have sometimes been called diligences. Moreover these operate as deemed diligences."

Consequently Mr Lynch submitted that sequestration not being a diligence was beyond the scope of Rule 5.7.

Further, under reference to the respected work of Professor McBryde "Bankruptcy" (2^nd Edition) Page 56 Paragraph 4-07 he submitted that various categories of entities could be sequestrated but that HB Engineering did not fall into any of the categories.

Mr Lynch submitted that it might be surmised that the Sheriff who granted the sequestration at Kilmarnock may have proceeded on the assumption that HB was a partnership but that ultimately as could be seen here this was not the case. HB Engineering was not a legal entity.

With reference to the Pursuer's list of Authorities number three (a copy of the initial writ and extract decree thereon dated 9 November 2000, Stephen Woodhouse v Glyn Daniel Aberdeen Sheriff Court) Mr Lynch drew my attention to the fact that the Sheriff there had not issued a note, the cause appeared to be undefended and again it might reasonably be assumed that the Sheriff there believed he was considering a partnership.

Mr Lynch also prayed in aid Pages 64 to 65, Paragraph 4-37 to 4-42 of Professor McBryde's work on Bankruptcy. His submission was that Professor McBryde stated that an inaccuracy in the name of the existing debtor might be fatal to proceedings. In diligence a high degree of accuracy in a name is required and that Professor McBryde further opined that sequestration is a collection of diligences. In these circumstances Mr Lynch submitted it can hardly be the case that less accuracy is required in sequestration proceedings.

Whilst conceding that a petition sequestrating "Peter Butler" would have caught the assets of HB Engineering, the converse is not the case, as HB Engineering is a non-existent body.

Mr Lynch further submitted that an action of declarator might be available to correct the true name of a person - for example if a Defender was designed as John Smith rather than as John Alan Smith. However that was not the position here. The position in the present case was not just an inaccurate version of a person's name but was, rather, a more fundamental error. In effect the pretended sequestration had been ab initio incompetent as it was not possible to seek the sequestration of HB Engineering a non-existent entity. The present action therefore was fundamentally incompetent and irrelevant and should consequently be dismissed. Accordingly the Court should sustain the Defender's pleas in law numbers one and two and dismiss the action with expenses in favour of the Defender.

For the Pursuer Mr Gordon accepted that there had been an error in designation of the debtor when the sequestration petition was presented. Further it was accepted that a petition for sequestration could have been presented to sequestrate Peter Butler trading as HB Engineering, given that HB Engineering was Mr Butler's trading name.

The declarator was being sought as the error had occurred in that the sequestration had proceed against the Defender in his trading name, HB Engineering.

Mr Gordon respected the views of Professor McBryde referred to by the Defender but submitted that the learned author had not referred to any authority for the view he had expressed. The learned author had spent some time looking at the question of the vexed question of sequestration of partnerships but the present court had to be reminded that in this case there was no doubt who HB Engineering was and who Peter Butler was as there was a clear admission in answer three on record.

Consequently the Pursuer sought declarator of that state of affairs in crave one. Mr Gordon referred to McPhail on "Sheriff Court Practice" (2^nd Edition) Page 649 Paragraph 20.01 in which, inter alia, the learned author quoting Stair and Erskine states that a declaratory action is one in which a right is craved to be declared in favour of the Pursuer but nothing is demanded to be paid or performed by the Defender.

The Pursuer it was submitted here does have an interest to have declared to be his and the Pursuer was not simply inviting the Court to make a decision which had no legal consequences for the Pursuer. In the present case, there was a live, practical issue having a sufficient degree of reality and immediacy. The matter in the present case is that without a declarator as sought the sequestration granted by the Court was effectively in limbo. There was in the present action a proper foundation for the declarator sought and no other remedy available to the Pursuer as the creditor bank had declined, as averred in article four of condescendence, to take any steps to remedy the error in the sequestration.

Mr Gordon submitted that conversely there was a remedy open to the Defender, namely to seek reduction of the award of sequestration.

Under reference to Walker "Civil Remedies" Page 134 he submitted that the present case was an example of a Pursuer requiring to resort to declarator in default of any other remedy. He submitted that the situation in the present case was the opposite of that found in Central Motor Engineering Company v Gibbs 1917 S.C. Page 490 where the Inner House had decided that an application to the Nobile Officium was incompetent where the remedy of reduction was available. By analogy said Mr Gordon there being no other statutory remedy available to the Pursuer, in terms of the Bankruptcy (Scotland) Act 1985, an action for declarator was both competent and indeed necessary.

Mr Gordon further submitted that a true reading of Ordinary Cause Rule 5.7 did not close the door on sequestration. If for example the Defender had debtors he could have raised an action for payment in his trading name in the Court, obtained decree, charged for payment and where no payment had taken place after charge could have petitioned the Court for the debtor's sequestration. This raised the question: How could it be in reality that HB Engineering is a non-existent entity if all of those steps could have been taken in its name?

Consequently in the present case Rule 5.7 ought to be interpreted as flowing both in favour of the entity suing in a trading name and against such an entity which is sued in that trading name. This was especially true where it is admitted on record that the Defender was the sole trader trading as HB Engineering.

Mr Gordon did concede that there was some difficulty in construing Rule 5.7 as regards the word "diligence". He conceded that logically there may be thought to be a difference between enforcing a debt under decree and the separate step of sequestration. He referred to McBryde op cit Paragraph 4-42 where the learned author referred to sequestration as a "collection of diligences" but this opinion of the learned author was stated without reference to any authority.

Mr Gordon further prayed in aid the decree in the Aberdeen case (referred to above in the Defender's submissions). He accepted that it was not decided after hearing argument, it would appear to have been an undefended action. However it must not be presumed that the Sheriff had granted decree of declarator on the basis of other than a reading of the Initial Writ in that case where the craves and statement of facts were almost identical to the present action.

Again Mr Gordon drew to the Court's attention that it was admitted on record in the present action that Peter Butler and HB Engineering were one and the same and consequently there could not be any dubiety about the matter; there was no other party involved.

Mr Gordon conceded that the Pursuer recognised that the present case gave rise to the interpretation of a number of grey areas where no clear authority was available. However he submitted that there was not sufficient force in the Defender's arguments to result in dismissal of the Pursuer's action at the present time at debate.

If I were to find for the Defender he did however concede that that would be the end of the matter and the Defender would be entitled to expenses. If however I was not with the Defender, it would be advisable to have the case call on the Procedure Roll to hear submissions on further procedure.

I allowed Mr Lynch a brief reply. Mr Lynch accepted that the present sequestration of HB Engineering without the assistance of the Defender meant in fact that the sequestration was in limbo. However it could not be expected that the Defender should seek to reduce the award of the sequestration. He need not do so because the Defender contended that the award of sequestration against HB Engineering was a nullity. He repeated that diligence did not include sequestration. He further submitted that Professor McBryde's comment that sequestration was a "collection of diligences" should be read as meaning that insofar as sequestration cuts down diligences that phrase means that sequestration brings a number of diligences together.

Mr Lynch conceded that crave one was admitted on record and submitted that crave two (the Defender's assets belong to his debtors following upon the sequestration of HB Engineering), and crave three (that the deliverance awarding sequestration of HB Engineering appointed the Pursuer as interim trustee of the present Defender) were contentious.

Mr Lynch submitted that crave one was a bare declarator which the Court should not pronounce. He relied on the opinion of the Lord Ordinary (Lord McIntosh in the Outer House judgement - subsequently appealed and decided on slightly different grounds) in the case of Sinclair Locharts - Trustees v Central Land Board 1951 Session Case 258 at 262. Accordingly in the present case crave one could not stand alone. Declarator cannot cure a fundamental nullity - the pretended sequestration of HB Engineering was no mere error (to be cured by declarator). HB Engineering was not a legal entity which could ever be sequestrated.

On reflection, and having heard Mr Gordon, Mr Lynch agreed that if I found against the Defender I should put the matter out for a hearing on the Procedure Roll and hear parties further on the question of expenses then.

It is an important principle in the substantive and procedural law of Scotland to be accurate in identifying the true status of the person who is to be sued.

In this case it is clearly conceded by the Pursuer that the sequestration petition ought to have run in the name of "Peter Butler trading as HB Engineering". This did not happen. I accept as a proper statement the comments of Professor McBryde paragraph 4-37 of his work on "Bankruptcy" that the scheme of the Bankruptcy (Scotland) Act 1985 assumes that the body in respect of which a sequestration petition is presented, or sequestration awarded, actually exists. I also accept the learned professor's view (at paragraph 4-42) that an inaccuracy in the name of the debtor may (with the emphasis in my view on the may) be fatal to proceedings. Further that in diligence a high degree of accuracy in a name is required.

The Defender argues that that error is fatal and that the error once having been made is not capable of being cured and that, consequently, the present action of declarator raised by the Pursuer is ill-conceived and bound to fail. Accordingly it is argued that the Court should sustain the Defender's first and second pleas in law.

In support of that primary argument the Defender has raised interesting questions as to the appropriate reading of Ordinary Cause Rule 5.7 and whether sequestration is a diligence.

On reflection I do not myself hold that it is the necessary starting point in deciding this case, nor is it a problem which the Court in the present action at this diet of debate, has to resolve.

Whilst acknowledging the care with which the Defender and the Pursuer took in presenting the issue as to whether the sequestration is a diligence, I have not found it necessary to answer that question nor to analyse and reach a concluded view on what Professor McBryde refers to when he states that sequestration is a "collection of diligences".

To answer these questions the Court would require more citation, and consideration of, authority before embarking on a journey of that type.

On reflection it seems to me that the real issue arising from the pleadings in the present case is whether, given that the Defender admits on record in answer three, that the Defender was the sole trader trading as HB Engineering and was the true debtor, the action of declarator is open to the Pursuer. The question becomes, within the context of pleadings in the present case whether the action of declarator is available.

I was advised by the solicitors for the parties that no authority has been found on the question raised in the present action.

The only similar case referred to by both the Pursuer and Defender was a case in Aberdeen Sheriff Court. There the Initial Writ was in very similar terms to the present action. However that action appears to have been undefended and consequently no note was issued by the Sheriff.

Whilst it might be inferred, as the Pursuer's agent invites me to do, that the Sheriff there was satisfied as to the competency of the action, it would, in my view, not suffice to allow me to do other than consider that the Sheriff must have so held. However I am not directed to any reasoning by the Sheriff which would assist me in deciding whether I should come to the same view.

I must, here, be satisfied that there is an argument available for the Pursuer that an action for declarator is competent in the circumstances of the particular pleadings in the present case.

There seems no doubt that any right may be ascertained by a declarator and as Professor Walker has observed in his work "Civil Remedies" at page 105 that the case reports by their volume and diversity illustrate the efficacy of the remedy of declarator.

In the pleadings in the present case the Pursuer seeks declarator that the Defender and HB Engineering were one and the same legal person. This is admitted by the Defender.

Moreover the Pursuer further craves that the Court declare that the Defender's estates belong to his creditors and that the sequestration of 5 May 2004 appointed the Pursuer as interim trustee of the Defender.

Reading the craves together it seems to me clear that the present action is not a request for a "bare" declarator but rather an invitation to the Court to find that the Pursuer has a particular status and right to the assets of the Defender. This is not a request for a declarator of some abstract legal question - it is declarator of a real practical question between the parties (I have adopted the statement of Lord McIntosh, in the Outer House, in the case of Sinclair-Locharts Trustees v Central Land Board 1951 S.C. page 258 at 262.)

There is in my view force in the Pursuer's argument that without the declarator the administration of the sequestration of HB Engineering (or as the Pursuer avers, the administration of the sequestration of Peter Butler trading as HB Engineering) is in limbo.

It seems to me that the remedy of declarator, which has a wide range to declare the true legal relationship between parties, is available in the present action especially given the Defender's admission of the factual position.

The declarators sought here cure, if the action should succeed on its facts, the apparent defect in the original sequestration petition presented to the Sheriff at Kilmarnock.

There is no other remedy available to the Pursuer in terms of the Bankruptcy (Scotland) Act 1985. I find myself attracted by the Pursuer's argument that the remedy of declarator ought to be available in these circumstances to declare the Pursuer's rights.

The question as to whether the Defender has a right to seek reduction of an incompetent award of sequestration is not directly presented in this case and I have not found it necessary to answer that question in the abstract nor indeed to answer the question in relationship as to whether or not declarator is available to the Pursuer.

It therefore seems to me to be inevitable that whilst the Court must be strict with the designation of any party being sued for debt or being made the subject of a petition for sequestration, it does not necessarily follow that there is no remedy where those strictures as regards designation are not followed.

The remedy of declarator being wide in its subjects matter is available to establish the true legal relationship between the present Defender and the Pursuer especially where the factual position is not essentially in dispute.

It seems to me that at the stage of debate, I need not answer whether the additional remedies of declarators in craves numbers two and three are necessarily to be established. This is a debate and the purpose of same is not to render a decision upon these questions but rather to decide whether even if the Pursuer were to establish all his averments his action would necessarily fail (Jamieson v Jamieson 1952 S.C. (H.L) page 44, per Lord Reid at page 63).

The decision on the matter at debate between the parties has been a narrow one reached on an examination of the pleadings and on a consideration of the availability of the remedy of declarator to cure an admitted defect in the original sequestration proceedings in the designation of the Defender.

I should say that I was not addressed, nor has my decision been reached upon consideration of the question of the inherent jurisdiction of the Sheriff Court (in the construction of Section 5 of the Sheriff Court (Scotland) Act 1907) - to do justice between the parties) (see the judgement of Sheriff Principal McPhail in Newman Shopfitters Limited v M.J. Gleeson Group plc 2003 SLT (Sheriff Court) 83 at pages 87 to 89).

However it respectfully appears to me that the decision I have reached may be thought to achieve the ends of doing justice between the parties. It also seems to me that the decision I have reached would not be in conflict with the primary statute - the Bankruptcy (Scotland) Act 1985.

Accordingly for the reasons I have stated that declarator is available to cure the error in the sequestration procedure, I have resolved to repel the Defender's pleas in law numbers one and two.

Parties requested that should I reach that decision that I put the cause out for a procedural hearing - I suspect that parties wished for a decision in principle on this matter and that any decision may well have some bearing on the parties' views as to the form of further procedure. I have also appointed that date for hearing parties on the question of expenses.

	[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	Scottish Sheriff Court Decisions
You are here: BAILII >> Databases >> Scottish Sheriff Court Decisions >> Accountant In Bankruptcy v. Butler [2005] ScotSC 78 (03 November 2005) URL: http://www.bailii.org/scot/cases/ScotSC/2005/78.html Cite as: [2005] ScotSC 78

Scottish Sheriff Court Decisions