OUTER HOUSE, COURT OF SESSION [2009] CSOH NUMBER 5
A370/07	OPINION OF LORD HARDIE in the cause KAROLA BARLOW (AP) Pursuer; against CITY PLUMBING SUPPLIES HOLDINGS LIMITED First Defenders: BRIAN WILLIAM MILNE Second Defender

Pursuer: Logan: Lindsays WS

First defenders: Hawkes; Allan McDougall & Co

16 January 2009

Introduction

[1] The pursuer seeks a declarator that she is not a debtor in terms of the decree in absence pronounced on 28 June 2005 by the sheriff at Edinburgh in an action at the instance of the first defenders against the firm trading under the name of IGS Plumbing & Electrical and she seeks reduction of any diligence against her following upon said decree. The pursuer also seeks reduction of a decree of sequestration awarded against the pursuer at the instance of the first defenders on 20 September 2005 at Edinburgh Sheriff Court. The remaining conclusions are ancillary to the first two conclusions. The case called before me at Procedure Roll in respect of the first two pleas-in-law for the first defenders which were in the following terms:-

"1. The action is incompetent.

2. The pursuer's averments being irrelevant et separatim lacking in specification the action should be dismissed."

In the course of the debate counsel for the first defenders conceded that his concerns were properly those of the relevance of the averments and submitted that the proper course for me was to repel the first plea in law but to sustain the second plea in law resulting in the dismissal in the action. Counsel for the pursuer invited me to repel of consent the first plea-in-law and to reserve the second plea-in-law by allowing a proof before answer.

Factual Averments

[2] The pursuer alleges that when she resided at 11 East Craigs Drive, Edinburgh she had a relationship with Ian Gordon Spence who also resided there. He was a plumber who traded under the name IGS Plumbing & Electrical. Unknown to the pursuer he used her name trading as that firm to obtain credit from a number of suppliers including the first named defenders. In March 2004 the pursuer discovered invoices and applications for credit in her name as a result of which she contacted the creditors including the first defenders and explained to them that the accounts were not her responsibility but that of Mr Spence. The first defenders sued IGS Plumbing & Electrical in the firm name only and obtained a decree in absence against that firm on 28 June 2005 at Edinburgh Sheriff Court. The pursuer avers that she was not at any time a partner or employee of IGS Plumbing & Electrical and did not authorise Mr Spence to use her name for the obtaining of credit or otherwise. The use of her name by him was fraudulent. On 19 July 2005 a charge against IGS Plumbing & Electrical based upon the said decree was served by keyhole service at 11 East Craigs Drive, Edinburgh when the pursuer was absent from home. The first defenders' position is that the application form for credit with them was completed in the name of the pursuer, trading as IGS Plumbing & Electrical and in those circumstances the first defenders were entitled to assume that the pursuer was the sole proprietor of that firm. On 13 September 2005 a petition for sequestration of the pursuer at the instance of the first defenders was served by letterbox service at 11 Craigs Drive, Edinburgh. By that date the pursuer did not own that address or reside there. The pursuer was subsequently sequestrated on 20 September 2005 at Edinburgh Sheriff Court when she had no knowledge of those proceedings. The pursuer avers that she remained unaware of her sequestration until 6 October 2005. A timeline (6/23 of process) relating to the period between 16 October 2005 and November 2007 is incorporated into the pleadings. On 16 October 2005 the pursuer consulted solicitors in Perth but no action was taken by them to seek recall of her sequestration. The second defender advised her to consult other solicitors and her current solicitors, Lindsays WS, accepted instructions on 21 November 2005. They also took no action to petition for recall of the sequestration.

Submissions on behalf of the first defenders

[3] Counsel for the first defenders referred to the pursuer's averment that on 29 March 2004 she discovered invoices and applications for credit in her name in Mr Spence's van. As was apparent from the summary cause summons (7/1 of process) the decree obtained by the defenders on 28 June 2005 against IGS Plumbing & Electrical related to the supply of building materials between 10 February 2004 and 5 March 2004. Counsel submitted that the averment in article 3 of Condescendence at page 9E of the Closed Record relating to the opening of an account with the first defenders lacks specification. In particular it does not specify how the form was completed or whether it was completed in the presence of representatives of the first defenders.

[4] He also submitted that, having obtained decree against the firm of IGS Plumbing & Electrical and having served a charge upon the firm, it was competent to sequestrate the pursuer on the basis that she had been trading as that firm. The pursuer's averments in article 5 of Condescendence relating to the designation of the firm as the debtor in the summary cause summons and in the subsequent charge for payment were irrelevant, as were the averments that the first defenders or their agents failed to ensure proper service of the petition for sequestration and that the petition was inept.

[5] The averments in article 6 of Condescendence specify the actions of the pursuer after 6 October 2005 when she allegedly became aware of the award of sequestration. Counsel submitted that the Bankruptcy (Scotland) Act 1985 ("the Act") provides remedies for the recall of a sequestration. In particular the debtor may petition for recall of the sequestration within ten weeks after the date of the award of the sequestration (section 16(4)(a)) or the debtor may petition for recall of sequestration at any time if the petition is presented on any of the grounds specified in section 17(1)(a) to (c) inclusive (section 16(4)(b)). In the present case the date of the award of sequestration was 20 September 2005 and the ten week period expired on 29 November 2005. The pursuer alleges that she first became aware of the sequestration on 6 October 2005. At that date eight weeks remained within which she could have presented a petition for recall of her sequestration in terms of section 16(4)(a). She did not do so. Moreover the averments disclose a long period of inactivity by the pursuer. The pursuer's legal aid application was not submitted by her present solicitors until 2007. The averments do not contain any satisfactory explanation for the delay between October 2005 and January 2007. The pursuer should not be absolved of responsibility for failing to act within the statutory ten week period. If her failure was attributable to the negligence of her solicitors her remedy is against them.

[6] Counsel also submitted that the court should not interfere with the award of sequestration in the absence of clear averments of fraud on the part of the first defenders. Under reference to Goudy: "The Law of Bankruptcy in Scotland" (4th edition) page 147, counsel recognised that where recall of a sequestration has become incompetent, owing to lapse of time, it was possible in some circumstances to seek reduction of the sequestration proceedings. However the circumstances where it might be appropriate to do so were exceptional. Goudy envisaged such proceedings where the award had been obtained by forgery or gross fraud. The pursuer's averments did not support an allegation of fraud against the first defenders and counsel for the first defenders understood that no such suggestion was to be made. The averments about the manner in which Mr Spence allegedly perpetrated a fraud on the first defenders to obtain credit in name of the pursuer were not precise. Nevertheless counsel for the first defenders accepted that they were sufficient to enable the pursuer to lead evidence about the alleged fraud at any proof. Counsel acknowledged that the continued relationship between the pursuer and Mr Spence after her knowledge of his alleged fraud was a matter for submissions after evidence on this matter had been led. Any fraud by Mr Spence was a fraud on the defenders and possibly on the pursuer. In the circumstances of this case the award of sequestration had not been obtained by fraud. The award of sequestration is valid and is not tainted by actions of a third party resulting in a decree for debt particularly where that decree had not been reduced. If there has been a miscarriage of justice in the sense that the original decree for payment was challengeable, counsel submitted that did not make the proceedings for the sequestration fundamentally null.

[7] Counsel also submitted that there were other remedies available to the pursuer. The pursuer could have petitioned for recall of her sequestration within ten weeks of the award. She had the benefit of legal advice during the last eight weeks of that period. Even after that period expired she could have sought reduction of the decree for payment which was the basis of the petition for sequestration. Thereafter she could have petitioned for the recall of the sequestration in terms of section 17(1)(a) of the Act. Alternatively the pursuer could have settled the debt due to the defenders or provided the defenders with adequate security for that debt and thereafter petitioned for recall of the sequestration. A further possible remedy was a petition to the nobile officium although counsel accepted that there may be difficulties associated with such a petition.

[8] In all the circumstances counsel invited me to dismiss the action as irrelevant in view of the failure of the pursuer to seek recall of the sequestration within the statutory ten week period and having regard to her delay in taking action when she has had the benefit of legal advice since two weeks after the date of her sequestration. The absence of a relevant explanation for the inordinate delay in this case resulted in her failure to meet the test that required wholly exceptional circumstances before an award of sequestration would be reduced.

Submissions on behalf of the pursuer

[9] Counsel for the pursuer invited me to repel the first plea-in-law for the first defenders and thereafter to allow a proof before answer. He submitted that counsel for the first defenders was in error when he referred to remedies available to the pursuer after the statutory ten week period had expired. After that period the Act provides the remedy of recall of sequestration if one of the grounds specified in section 17(1)(a) to (c) inclusive is established (section 16(4)(b)). The only ground that might apply in this case was if the pursuer had paid her debts in full or had given sufficient security for their payment. (Section 17(1)(a)). The pursuer maintains that the debt due by IGS  Plumbing & Electrical is not her debt. That is a matter for proof and it would be unrealistic and unreasonable to expect the pursuer to pay the debt of a third party to enable her to obtain recall of her sequestration. The pursuer does not intend to pay the debt or offer security for it. Instead she seeks declarator in terms of the first conclusion that the debt is not hers. Counsel accepted that if the pursuer is successful in that conclusion she may then be entitled to recall of the sequestration in terms of section 17(1)(a). However an action of reduction of an award of sequestration was also competent. Section 15(4) of the Act is in the following terms:-

"Without prejudice to any right to bring an action of reduction of an award of sequestration, such an award shall not be subject to review otherwise than by recall under sections 16 and 17 of this Act."

That provision specifically preserves the right of a debtor to seek an action of reduction.

[10] Counsel also submitted that an action of reduction of the decree of debt was not appropriate in this case. The debt was properly due by IGS Plumbing & Electrical. The issue in this case was whether the pursuer was either a sole trader using that name or was a partner of that firm. An action of reduction was bound to fail. Moreover an application to the nobile officium would not have been appropriate. There was no lacuna in the statutory provisions for recall. The exercise of the nobile officium was even more exceptional than an action of reduction of an award of sequestration.

[11] In relation to the question of delay the averments in article 6 of Condescendence set out the history of the actions taken by the pursuer. These incorporate the timeline (6/23 of process). Significant parts of the delay were occasioned by the failure or inability of the first defenders to provide records to the pursuer's advisors. Unsuccessful attempts had been made to persuade Mr Spence to pay the debt due to the first defenders with a view to seeking their consent to recall of the sequestration. Moreover it was necessary to investigate other creditors to clarify whether they were creditors of the pursuer and also whether they would consent to recall or reduction of the sequestration. The trustee in the present case does not oppose the action and any prejudice occasioned by delay is minimal. The defences are silent concerning the consequences of the delay and there is no plea of mora. The failure of the pursuer's solicitors to act timeously does not make the action irrelevant.

[12] Counsel also submitted that if the decree of sequestration was obtained as a result of a decree for debt that in itself was tainted by fraud, the proper conclusion was that the decree for sequestration had been obtained by fraud. The petition for sequestration was impetrated by fraud because it was based upon the fraudulent form completed by Mr Spence. Moreover the test is whether there has been a miscarriage of justice. He submitted that it is clear on the basis of the pursuer's averments that the first defenders were misled into believing that Mr Spence's debt was truly the debt of the pursuer. What followed as a result of that misunderstanding was clearly a miscarriage of justice. Balanced against that, the court would have to consider the delay on the part of the pursuer in taking action and the consequences of any such delay. In considering the question of overall fairness the court may require to consider whether the pursuer has been indifferent or whether she acted promptly and appropriately. Following sequestration the interests of third parties including the trustee in sequestration and other creditors are potentially affected by a reduction of sequestration. Except in extreme cases the court should not determine as a matter of relevance whether there had been inexcusable delay. That should only be determined after evidence has been heard.

Response on behalf of the first defenders

[13] Counsel for the first defenders accepted that a petition to the nobile officium would have failed in this case because the pursuer had failed to avail herself of the statutory remedies prior to the expiry of the ten week period specified in section 16(14)(a). In regard to the submission relating to the occurrence of substantial injustice, counsel submitted that the decree of sequestration had not been obtained by fraud and that the alleged fraud predated the court action in which decree for payment was sought and obtained. As regards the actions of the pursuer following her alleged discovery of the award of sequestration, the failure of her solicitors to act timeously was analogous to the failure of solicitors to act within the three year limitation period in personal injury actions. As with any statutory time bar the obligation on solicitors advising clients was to give clear and unequivocal advice concerning the time limits that applied. Failure to act within the time period must be explained to the client. The client must be aware of the intention to take no action within the statutory period and the client must consent to that course being adopted by the solicitor. An award of damages against her solicitors would compensate the pursuer for their failure to seek recall of her sequestration, if they had been negligent.

Authorities cited

In the course of the debate the following authorities were cited:

Central Motor Engineering Co v Galbraith 1918 SC755;

Adair v Colville & Sons 1926 SC(HL)51;

Arthur v The SMT Sales and Service Co Ltd 1999 SC109;

Smillie v Olympic House Ltd 2004 SLT1244;

Bain v Hugh L.S. McConnell Ltd 1991 SLT691;

John Parkes v Robin MacGregor & another [2008] CSOH43;

Dickson v United Dominions Trust Ltd 1988 SLT19;

Pert v Bruce 1937 SLT 475;

Wright v Tennent Caledonian Breweries Ltd 1991 SLT823;

Brown v Middlemas of Kelso Ltd 1994 SC401;

Sutherland v Advocate General 2006 SC682;

Bankruptcy (Scotland) Act 1985 (as amended);

Summary Cause Rules 2002

Goudy: "The Law of Bankruptcy in Scotland" (4th Edition);

McBryde: "Bankruptcy (2nd Edition);

Discussion

[14] Before dealing with the substantive issue of the relevance of the action as a whole I have considered the criticism of the pursuer's averments in article 5 of Condescendence. It seems to me that there is considerable force in that criticism. The fact that the first defenders obtained decree in the name of a firm, omitting to mention the pursuer as a principal of the firm and the fact that the charge reflected the terms of the decree is irrelevant. As was conceded by counsel for the pursuer the summons and the decree are each in a competent form. Equally irrelevant to the question of the declarator and reduction sought in terms of the first and second conclusions of the summons respectively are the averments that the first defenders or their agents "failed to ensure proper service of the petition of sequestration" and that "the petition itself is inept because it fails to aver the basis upon which the pursuer was liable for a decree that was not addressed to her." Counsel for the pursuer accepted that these averments were of no moment in relation to the principal conclusions of the summons but explained that they were intended to support the fourth conclusion seeking an order that the first defenders should be liable to the second defender in the cost of the administration of the sequestration to date. While I have considerable reservations about the relevance of these averments generally, I cannot exclude at this stage the possibility that they may have some relevance for the limited purpose explained by counsel for the pursuer. Accordingly I shall not exclude them from probation.

[15] Although counsel for the first defenders initially submitted that the action was incompetent, subsequently he restricted his submissions to the plea to the relevance of the pursuer's averments and conceded that an action of reduction of an award of sequestration was competent. From the authorities cited it seems to me that although such an action is competent it is necessary for a pursuer to aver and prove exceptional circumstances in support of such a remedy. The passage cited from Goudy's fourth edition of "The Law of Bankruptcy in Scotland", that where the recall of sequestration has become incompetent because of the lapse of time

"it is possible that in some circumstances a reduction of the sequestration proceedings might be brought - as for example where the award has been obtained by a forgery or gross fraud" (page 147)

appeared in the third edition and was cited with approval in the opinion of Lord McKenzie in Central Motoring Engineering Company v Galbraith at page 770. Lord McKenzie acknowledged that an action of reduction of a decree of sequestration was not incompetent but observed that there had been no case in which decree of reduction had been pronounced. He explained that the reason was that it was only

"in a case where exceptional circumstances can be pleaded that the exceptional remedy by way of reduction could be granted".

Whether there are such exceptional circumstances meriting the exceptional remedy of reduction of an award of sequestration involves, in my opinion, careful consideration of the facts and circumstances of the particular case. In the absence of an agreed statement of facts it seems to me that the determination of whether such exceptional circumstances exist will inevitably involve a proof, assuming the pursuer makes sufficient averments that could amount to exceptional circumstances. In order to determine whether there are exceptional circumstances justifying this unusual remedy there appear to be two issues that require exploration in the present case. The first relates to the alleged fraud by Mr Spence in ordering goods while pretending that the pursuer was a principal of IGS Plumbing & Electrical. Allied to that allegation is the continued relationship between the pursuer and Mr Spence after the pursuer's knowledge of such fraud and the extent of the pursuer's knowledge of the proceedings for her sequestration including the decree and the charge that predated the petition for sequestration. Without inquiry into such matters I am not prepared to dismiss as irrelevant the allegations of fraud by Mr Spence. If the debt was that of a firm with which the pursuer had no connection, the sequestration of the pursuer is apparently an injustice. If the pursuer had not been able to avail herself of the remedy in section 16(4)(a) of the Act it may well be that the award of sequestration should be reduced. However that cannot be determined in isolation and must be considered in the context of the case as a whole. The second issue requiring exploration at proof is, even if the pursuer was unaware of the sequestration proceedings until two weeks after the award of sequestration, her failure to take action to recall the award during the following eight weeks and the subsequent delay in taking proceedings. Although the first defenders have no averments about the consequences of such delay for them or others there are averments in Answer 6 that would enable them to explore the reasons for the delay.

[16] Before hearing the debate I raised with counsel for both parties the question of the appropriateness of the pursuer's solicitors acting in the present case in view of the fact that they had acted for the defenders in seeking the award of sequestration of the pursuer, which was the subject matter of the present proceedings. 6/7 of process is a letter dated 20 September 2005 from Lindsays WS, the pursuer's present solicitors, addressed to Messrs Nolan Macleod, the first defenders' solicitors. That letter discloses that Messrs Lindsays WS acted as correspondents for Messrs Nolan Macleod in the sequestration of the petitioner and appeared on behalf of the first defenders when decree of sequestration of the pursuer was pronounced. I referred counsel to that letter. I was advised that this matter had been raised by the first defenders' solicitors with the pursuer's solicitors who had maintained that there was no conflict of interest in their now acting for the pursuer. The pursuer's solicitors had taken advice from the Law Society of Scotland and were of the view that they could continue to act in this case. In the course of the debate it became clear that the pursuer consulted her former solicitors in Perth and her present solicitors prior to the expiry of the ten week period within which she could have petitioned for recall of her sequestration. Moreover it was accepted by counsel for the first defenders that, if such a petition had been presented within the statutory period alleging that the debt forming the basis of the petition for sequestration was not truly the debt of the pursuer, such a petition for recall would almost certainly have been successful. In the context of the appropriateness of a petition to the nobile officium I was referred to the case of Brown v Middlemas of Kelso Ltd. In the course of submissions in that case the court was referred to observations of Lord President Clyde in Maitland, petitioner 1961 SC291 at 293 to the following affect:

"The nobile officium of this court involves a power in the Supreme Court in Scotland to enable justice to be done where, per incuriam, some formal step has been omitted and quite unnecessary delay and expense would be involved if the procedure had to be gone through all over again. It is often invoked in connexion with the omission of some procedural, technical, step in bankruptcy or in the liquidation of companies. But it would, in my view, be invoked in vein if it were to be used as a mere cloak for incompetence on the part of the applicant's representatives ......"

In Brown v Middlemas of Kelso Ltd the court was influenced by the fact that the petitioner did not advance any colourable explanation for his failure to seek recall of sequestration prior to the expiry of the ten week period. It respectfully seems to me that the comments of Lord President Clyde may also be apt in the present case, depending upon its particular facts and circumstances. If the remedy which the pursuer seeks is an exceptional one it might be inappropriate for the court to grant it if it were established that the pursuer could have sought and obtained the recall of the sequestration by availing herself of section 16(4)(a) of the Act. Whether the failure to do so resulted from the pursuer's failure to give appropriate instructions to her solicitors or whether it resulted from incompetence on the part of the solicitors might be irrelevant. If it is the latter, the pursuer's remedy is to seek redress against the solicitors who were negligent. If it is the former, the actions of the pursuer need to be balanced against any other relevant facts and circumstances in order to determine whether an exceptional remedy should be granted. The reasons for the delay during the eight weeks available to the pursuer in which she could have sought recall of the sequestration should not, in my opinion, be determined on the basis of the pleadings but require to be elucidated in evidence. In that regard either party may wish to explore the issue of the advice tendered to the pursuer and the instructions given by her to her solicitors prior to the expiry of the ten week period as well as the reasons for the pursuer's failure to act. As the pursuer's past and present solicitors may be cited as witnesses by either party it remains a question for her present solicitors to consider the appropriateness of their continuing to act in this case.

[17] I do not consider that the alternative remedies suggested by counsel for the first defenders were appropriate. It was ultimately accepted by counsel for the first defenders that a petition to the nobile officium was not appropriate. Even if that had not been acknowledged I would have rejected his submissions in that regard. The circumstances that prevailed in Wright v Tennent Caledonian Breweries Ltd could not apply in the present case. In that case the ten week period during which a debtor could seek recall of an award of sequestration commenced with the date of the warrant of citation and that period elapsed before sequestration was awarded, thereby depriving the petitioner of the statutory remedy. Since then the legislation has been changed so that the commencement date of the ten week period is now the date of the award of sequestration.

[18] Nor do I consider than an action of reduction of the summary decree would have been successful, if competent. Rule 5.2 of the Summary Cause Rules 2002 permits a person carrying on a business under a trading or descriptive name to sue or be sued in such trading or descriptive name alone. A decree against a person under the trading or descriptive name is a valid warrant for diligence against that person. In the present case decree was taken against the firm and the decree was warrant for diligence against the individual or individuals carrying on business in that descriptive name. The debt was due by the firm and there is no basis for reducing the decree against the firm.

[19] Equally if she is not the true debtor I do not consider that it is reasonable to expect the pursuer to pay the debt due to the first defenders to enable her to seek recall of her sequestration under section 16(4)(b) of the Act . However, counsel for the pursuer accepted that if declarator in terms of the first conclusion is granted, recall of the sequestration may be available under section 16(4)(b). Thus even if declarator is pronounced the court may take into account such a remedy before granting the exceptional remedy of reduction. The availability of that remedy is simply another factor to be considered. In all the circumstances I shall allow a proof before answer.

Decision

[20] I shall repel of consent the first plea-in-law for the first defenders and quoad ultra shall allow a proof before answer.