Scottish Sheriff Court Decisions

HADDINGTON S69/03

The Sheriff Principal, having resumed consideration of the cause, refuses the appeal; adheres to the interlocutor of 26 May 2003; reserves all questions of expenses and appoints parties to be heard thereon on 8 January 2004

at 10.30 am within the Appeal Court, Sheriff Court House, 27 Chambers Street, Edinburgh.

[1] This is one of two petitions for sequestration brought by the same creditor petitioners against a husband and wife. The petitions are in identical terms. At the calling of the petitions on 26 May 2003, the date specified in the warrant to cite, the same solicitor appeared for both debtors. In each case the Sheriff refused sequestration and dismissed the petition on the ground that the creditors' oath did not comply with the requirements of the Bankruptcy (Scotland) Act 1985, as amended ('the Act'). The petitioners have now appealed. The appeals were heard together, both respondents being represented by the same counsel. My interlocutors disposing of the appeals are in identical terms. In this note I shall refer only to the petition against the husband. The whole contents of the note, however, apply equally to the petition against the wife. My note in her case therefore simply refers to this note.

[2] The petitioners are the landlords and the respondent and his wife are the tenants of The Creel Hotel in Port Seton. The material averments in the petition are as follows:

I shall consider these documents later. The petitioners' averments continue:

[3] When the cases were called before the Sheriff on 26 May 2003 the petitioners' solicitor moved for sequestration. The respondent's solicitor made certain criticisms of the oath that had been lodged, and after some delay the Sheriff allowed another oath to be produced in terms of section 11(4) of the Act. The respondent's solicitor conceded that the respondent was apparently insolvent because, following on the service on him of a duly executed charge for payment of a debt, the days of charge had expired without payment (section 7(1)(c)(ii) of the Act). She stated that what was due by the respondent was materially less than the sum specified in the charge; and that the respondent had applied for suspension of the charge but had failed to find the necessary caution and had not pursued the application. She submitted, however, that the oath produced in terms of section 11(4) was not in the prescribed form and did not give adequate notice of the details of the sums claimed. The solicitor for the petitioners, on the other hand, founded on the extract registered lease and the stated account and certificate, and submitted that the oath complied with the requirements of the Act. The Sheriff sustained the submission of the solicitor for the respondent and dismissed the petition.

[4] At the hearing of the appeal counsel for the petitioners argued that the oath complied with the statutory requirements. He accepted, however, that if it did not, the petition would fall to be dismissed because it would not have been presented in accordance with the provisions of the Act. That was the outcome contended for by counsel for the respondent. The respondent's counsel also presented a further argument to the effect that the requirements for the constitution of apparent insolvency had not been met or, alternatively, that there was cause shown why sequestration could not competently be awarded. That further argument had not been submitted at the hearing before the Sheriff, where it had been conceded that the respondent was apparently insolvent, but counsel for the petitioners did not object to its deployment at the appeal since counsel for the respondent had given him notice of it. I now consider the two arguments in turn.

[5] The following are the relevant statutory provisions. Section 12(3)(b) of the Act provides, read short, that where, on a petition for sequestration presented by a creditor, the court is satisfied that, among other things, the petition has been presented in accordance with the provisions of the Act, it shall award sequestration forthwith. The provisions of the Act which are relevant for present purposes begin with section 11(1). It provides that every creditor who is a petitioner for sequestration must produce 'an oath in the prescribed form made by him or on his behalf'. Section 11(5) requires every creditor to produce along with the oath 'an account or voucher (according to the nature of the debt) which constitutes prima facie evidence of the debt; and a petitioning creditor shall in addition produce such evidence as is available to him to show the apparent insolvency of the debtor.' The form of the oath is prescribed by the Bankruptcy (Scotland) Regulations 1985, as amended ('the Regulations'). Regulation 5 provides that the forms set out in the Schedule are those prescribed for the purposes of the provisions of the Act referred to therein.

[6] Form 2 in the Schedule is headed 'Oath by Creditor' and begins with a reference to section 11(1) of the Act and directions as to the swearing of the oath. It then sets out two columns in tabular form, the left-hand column containing instructions in italics as to how to complete the various blank spaces in the right-hand column, in some of which there are words in roman script. Form 2 clearly envisages a printed form with the details of the creditor, the debtor and the swearing of the oath on the front and the particulars of each debt on the back. This case is concerned with how the petitioners dealt with that part of the form headed 'Particulars of each debt'. In Form 2 there appear in that part of the form, in the right-hand column, four headings in bold roman type, each followed by a space for the insertion of information. The headings are '(1) Amount of debt', '(2) Details of debt', '(3) Evidence of debt' and '(4) Security for debt'. In the left-hand column opposite each heading there are notes in italics prescribing the information which is required.

[7] In the present case the petitioners have not used a printed form. The oath produced consists of two typewritten sheets and does not follow the tabular layout in Form 2. The first sheet contains the words in roman type on what Form 2 envisages as the front of the form, but it does not reproduce the words in italics. The required information is also typewritten. Nothing turns on that. The contentious matters are the contents of the second part of the form headed 'Particulars of each debt', which appears on the second sheet, and the documents produced as evidence of the debt. On the second sheet the petitioners have again ignored the two-column layout and have typed across the page, not quite accurately, the instructions in the left-hand column of the form; and they have inserted information under each set of instructions, omitting the headings which appear in bold type on Form 2. Everything is in roman type. This layout is unnecessarily confusing, but what is of importance is the information provided.

[8] It is necessary to reproduce the second sheet in full:

[9] It will be seen that the evidence of the debt comprises 'extract registered lease' and 'certificate of indebtedness'. The lease is that referred to in paragraph 2 of the statement of facts in the petition, quoted in paragraph [2] above. The landlord is named in the lease as 'Punch Taverns Properties Limited' and 'Punch Taverns Limited', both with an address at Trent House, Fradley Park, Lichfield. The two respondents are collectively called 'the Tenant'. Paragraph 1.13 of the lease is in these terms:

The final provision of the lease states:

[10] The 'certificate of indebtedness' is a 'Stated Account and Certificate'. It is on paper headed with the following name and address:

It states:

Rent 2232.81

[11] Before the Sheriff the petitioners' solicitor conceded that he did not know how the various figures in the oath had been calculated or to what particular items certain of the sums were referable. He submitted that that did not matter since the effect of clause 1.13 of the lease was that the certificate was binding on the debtor. The Sheriff considered, however, that what was set out in the oath

[12] At the hearing of the appeal counsel for the petitioners submitted that the Sheriff had taken an unduly strict view. The oath should not be required to have the degree of specification appropriate to written pleadings and a practical approach was required. He referred to the opinion of Lord Nimmo Smith in Clydesdale Bank plc v Grantly Developments 2000 SLT 1369 at 1373A, paragraph [8], that the lodging of an oath which in some particular is not in the prescribed form does not render the proceedings incompetent. He also cited Lord Advocate v Thomson 1995 SLT 56 as the only other authority touching on Form 2. Here, the amount, details and evidence of the debt had all been sufficiently stated, and it had been made clear that no security was held in respect of the debt. These were the four matters about which information was required by Form 2. The purpose of the oath was not to make a formal demand for payment or to advise the debtor how much to pay to avoid sequestration, but to vouch the petitioners' title: it was a formal declaration that the petitioner was owed money and consequently could seek sequestration of the debtor. The demand for payment had been the charge, and no issue had been taken with the charge. The Sheriff's interlocutor should therefore be recalled.

[13] Counsel for the respondent made a number of criticisms of the oath. The various items specified in the first paragraph should have been the subject of a separate set of particulars. In the second paragraph the various charges were said to be due in terms of the lease, but there was no specification of such items in the lease. Nor could a single debt become due on various dates. Counsel made the following specific criticisms, under reference to Ballantyne v Barr (1867) 5 M 330 and Riddell v Galbraith (1896) 24 R 51.

(i) As to the rent, there was no specification of when the obligation had been incurred or of when it had become payable: it was claimed for an unspecified period. It could not be for a month, because the annual rent, in terms of clause 1.5 of the lease, was £28,500. The respondent was unable to identify how it had been calculated.

(ii) There was no specification of the 'goods' which amounted to the very specific figure of £2184.45. Clauses 1.14 and 1.15 of the lease dealt respectively with 'Stock at Date of Entry' and 'Purchased Moveables at Date of Entry' but in each case the lease provided, 'Price to be determined by valuation (in the absence of mutual valuation) instructed by the Landlord and purchased at that price by the Tenant'. The petitioners did not dispute, however, that no valuations had been carried out. The lease did not indicate when any obligation to pay for such items arose.

(iii) 'Buying out charge' and (iv) 'Orders in OT24' did not refer to anything in the lease and were completely incomprehensible.

(v) There was nothing in the lease about the payment of 'Legal fees' by the respondent to the petitioners. No voucher of any kind had been produced relative to this head. There was no certificate of taxation, and it was incompetent to do summary diligence in respect of untaxed legal expenses.

(vi) 'Balance due re fixtures and fittings': this could only refer to clause 1.15 of the lease, and a valuation would be necessary.

No issue was taken with the deductions in respect of a deposit and a payment to account, although they were said to be lacking in specification.

[14] Counsel for the respondent submitted that the oath was more than a formal declaration that the debtor owed money to the creditor. Its purpose was to set out in intelligible form the amount of the debt, what it related to, when it was incurred and when it became payable, together with any voucher or evidence of the debt and specification of the nature and value of any security, so that anyone with an interest to do so, such as other creditors or a trustee or the respondent himself, could examine the documents and form a view about the value of the claim, the extent to which it was likely to form a valid claim in the sequestration and the extent of any security which existed to meet it. It should not be assumed that Parliament had provided for the furnishing of the specified information for no good reason.

[15] Counsel for the respondent also criticised the stated account and certificate. He submitted that it was open to challenge, whatever had been stated in the lease: Bell, Comm, i, 382; Maher and Cusine, Diligence para 2.26, p 37; Smith v Drummond 7 S 792. He pointed out that clause 1.14 of the lease required the stated account and certificate to be made out by or on behalf of the landlord or a group company duly authorised by the landlord. The document produced did not identify the name or capacity of the signatory. The date of signature had not been stated. The name and full address of the landlord had been left blank. The name of the concern on whose paper the document had been printed was not the name of either of the companies identified as the landlord in the lease. That concern also had a different address from those companies. There was nothing to indicate that it was a group company duly authorised by the landlord. The stated account and certificate did not vouch the debt claimed to be due in the oath.

[16] In response to these criticisms of the oath and the stated account and certificate the petitioners' counsel submitted that it would have been incorrect to make out a separate set of particulars for each head of debt in the first part of the particulars. That would have been to ignore the reality of the situation which was that there was a single obligation which had arisen under a single document of debt, the lease. The situation was analogous with those in Ballantyne and Riddell, which had been concerned with current accounts. It was difficult to see what prejudice could have been caused by this approach. As to the criticism that the oath lacked specification, this was not closed record but a form that had to be completed as a practical exercise by providing the information required. Ballantyne and Riddell had been concerned with oaths that had formed part of the written pleadings.

[17] In order to decide whether the oath conformed to the statutory requirements it is necessary to ascertain the purpose of such an oath. It must be axiomatic that an oath should be sufficiently specific to be intelligible to those who have a legitimate interest in reading it. In Riddell v Galbraith (1896) 24 R 51 the Court considered the affidavit and relative account of the concurring creditor in a debtor's petition for sequestration. Lord President Robertson referred (at page 53) to the 'need for there being such a specification as shall indicate to the body of creditors what is the origin and nature of the claim.' Referring to the claim of the concurring creditor in Ballantyne v Barr (1867) 5 M 330 he said:

It may be relevant to notice that the contents of the oath by a creditor which are specified in Form 2 of the Regulations are very similar to those of the statement of claim by a creditor in Form 5. The latter appears to be designed to furnish the trustee with sufficient information to enable him in an ordinary case to adjudicate upon the claim. In any event it seems clear that the oath must provide information about the origin, nature and validity of the claim with sufficient particularity to enable all who are interested, who must include the debtor, to understand it and reach a view about it. Whether an oath complies with those requirements is a matter requiring close attention. In Ballantyne, where the voucher for the concurring creditor's claim was scrutinised, Lord Cowan said (at page 333):

[18] In the present case the first of the four sections of the sheet headed 'Particulars of each debt' (headed in Form 2 in the Schedule to the Regulations '(1) Amount of debt') sets out various items with figures opposite them and tells the reader that the total amount of the debt is £53,021.83. The second section, headed in Form 2 in the Regulations '(2) Details of debt', repeats certain of these items without attributing figures to them. It seems necessary to infer that the details required are to be found in the first section of the form. There, however, the information given is quite unspecific. There is no indication of the subjects for which the rent claimed is payable, or of the period in respect of which it is payable. The 'goods' are not specified; and that is a very serious objection (Ballantyne; Riddell). The items 'Buying out charge' and 'Orders in OT24' are unintelligible; there is no indication of the services for which the 'legal fees' are payable; and 'Balance due re fixtures and fittings' does not state what they are or why any balance is due.

[19] Let it be assumed, however, that the oath is to be read as a whole and any deficiency in one part may be supplied by another part. Here, the only other part of the form which offers information is the third section, headed in Form 2 'Evidence of debt'. Two documents are said to be evidence of the debt: the extract registered lease and the certificate of indebtedness. Any document produced along with the oath must be 'an account or voucher (according to the nature of the debt) which constitutes prima facie evidence of the debt' (section 11(5)). The lease, however, does not constitute such evidence. It does not specify how much rent is due. As to goods, it only makes provision for valuations that have not taken place, and provides no figures. It does not refer to 'Buying out charge', 'Orders in OT24' or legal fees; nor does it elucidate 'Balance due re fixtures and fittings'.

[20] It is therefore necessary to resort to the certificate of indebtedness, that is, the stated account and certificate. Paragraph 1.13 of the lease (quoted in paragraph [9] above) tells the reader that a stated account and certificate shall be binding on the tenant if it is made out by or on behalf of the landlord or a group company duly authorised by the landlord. It is impossible, however, to tell who made out the stated account and certificate produced by the petitioners. The name of the person who signed it cannot be deduced from the illegible signature. His or her capacity is not specified. The name and address of the landlord is not stated. The document is on paper which bears the name and address of a body different from those of the companies who are the petitioners and the landlords in the lease. Even if the document had been correctly executed, the respondent would have been entitled to challenge it: Smith v Drummond (1829) 7 S 792. The challenge is well-founded because, as to the items of which the total amount of the debt is said to be composed, it merely repeats the information in the oath without the addition of any explanation whatever.

[21] In my opinion, accordingly, while an interested reader might deduce that the petitioners' claim had its origins in a lease between the petitioners and the respondent, he or she could not possibly understand the nature of the claim and would certainly not have enough information to scrutinise and judge of its validity, even if he or she were to read the documents benevolently and with less than the extreme care that is necessary. I have therefore concluded that the Sheriff was correct not to award sequestration but to dismiss the petition, and I have refused the appeal.

[22] I shall, however, briefly state my views on the further submissions by the respondent's counsel. He argued that the requirements of the Act relating to apparent insolvency had not been fulfilled; and alternatively, that there was cause why sequestration could not competently be awarded. Those submissions were founded on the following provisions of section 12:

Subsection (3A) was introduced by the Bankruptcy (Scotland) Act 1993, section 4: see McBryde, Bankruptcy (2nd ed), pages 109-110, paras 5-62 to 5-64.

[23] In support of his primary submission counsel argued that apparent insolvency had not been constituted in terms of section 7(1)(c)(ii), which provides:

Counsel submitted that a charge could not be duly executed if it did not proceed on a valid warrant. If the obligation was indefinite or required something to be ascertained judicially before execution could be done, summary diligence was incompetent: Bell, Principles, 10th ed, sec 68; Graham Stewart, Diligence, page 413. Here, the procedure for valuation of the stock and moveables had not been carried through: the petitioners could not competently certify at their own hand the sum which they claimed to be due. It was also incompetent to charge for untaxed legal expenses: Graham Stewart, page 414.

[24] Further, there had been no proper warrant for the charge. Clause V of the lease provided that the parties consented to registration of the lease and of any stated account and certificate for preservation and execution. Both the lease and the stated account and certificate should have been presented for registration and the issuing of a warrant. Reference was made to the Debtors (Scotland) Act 1987, section 87(4); Fisher v Syme & Stewart (1828) 7 S 97 at 103; Maher and Cusine, page 37, para 2.26; Halliday, Conveyancing and Feudal Reform (Scotland) Act 1970 (2nd ed) page 178, para 10-01; Halliday, Conveyancing Law and Practice (2nd ed) vol 1, page 214, para 4.65. Here, no sum was stated in the lease.

[25] Counsel submitted that it was not too late to make this submission. An opinion to the contrary in McBryde on Bankruptcy (2nd ed) pages 45-46, paras 3-25, 3-26, was not supported by the authorities cited, Dickson v United Dominions Trust Ltd (No 2) 1983 SLT 502, Dickson v United Dominions Trust Ltd 1988 SLT 19 and Scottish and Newcastle Breweries plc v Mann 1989 SCLR 118. The latter was an example of a debtor successfully challenging the validity of a diligence during bankruptcy proceedings without having suspended the diligence earlier. Inland Revenue v Gibb 1963 SLT (Notes) 66 was an example of a factual dispute as to the execution of an ex facie regular charge. Wilson v Bank of Scotland 1987 SLT 117 and Mackay v Bank of Scotland 1992 SLT 158 were similar to Sutherland v Sutherland (1843) 5 D 544 and were not concerned with a challenge to the competence of the diligence itself. In any event all these cases had been decided before the introduction of section 12(3A) by the 1993 Act.

[26] In reply, counsel for the petitioners submitted that the respondent's attack on the charge came too late. If the respondent had wanted to take issue with the charge, he should have proceeded by way of suspension, reduction or interdict before the expiry of the days of charge. That was well recognised in practice: sequestration proceedings were meant to be summary. An award of sequestration could be recalled by virtue of section 17 of the Act. In Scottish and Newcastle Breweries plc v Mann both parties had accepted that it was appropriate for the court to look at the execution of the charge in order to see whether it was ex facie valid. In any event the execution of the charge here was in standard form and it was not necessary to go behind it. Reference was made to Graham Stewart, pages 332 and 335. There was no need to obtain a fresh warrant to take account of the stated account and certificate: Bell, Principles (10th ed) sec 68. Untaxed legal expenses were not in a special category: the circumstances of Paisley Union Bank v Hamilton (1831) 9 S 488, cited in Graham Stewart at page 414, had been special. Reference was also made to Halliday, Conveyancing Law and Practice (2nd ed) vol 1, page 214, para 4-65.

[27] In my opinion the charge in the present case cannot be said to have been duly executed because the correct procedure was not followed relative to the stated account and certificate. The latter should have been presented for registration and a warrant issued authorising summary diligence in respect of the amount stated in it (Fisher v Syme & Stewart (1828) 7 S 97 at page 103; Paisley Union Bank v Hamilton (1831) 9 S 488; Halliday, Conveyancing Law and Practice (2nd ed) vol 1, page 215, paragraph 4-65; Maher and Cusine, page 37, paragraph 2.26). Since that was not done, it is not possible for the court to be satisfied in terms of section 12(3)(d) of the Act that the requirements of section 7(1)(c)(ii) relating to apparent insolvency have been fulfilled. I would therefore have been prepared to sustain the dismissal of the petition on this ground also. I would also have been prepared to do so on the ground of the absence of valuations.

[28] I would have allowed the respondent to raise these issues under section 12(3A)(a). Whatever the precise scope of that provision may be, its terms appear to be sufficiently general to enable a respondent to raise issues of competency such as these which are capable of being immediately decided.

[29] Counsel were agreed that if I were to hold that the Sheriff's interlocutor should be recalled, I should not grant sequestration but should remit the cause to the Sheriff, as in Commissioners of Customs and Excise v Zaoui 2002 SLT 201. In the result, however, I have refused the appeal. Both parties asked me to reserve the question of expenses, and I have appointed a hearing on that matter.