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Scottish Court of Session Decisions |
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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> MacKinnon In The Cause Hurst Fuels Ltd v Dundonald House Ltd [1999] ScotCS 68 (5 March 1999) URL: http://www.bailii.org/scot/cases/ScotCS/1999/68.html Cite as: [1999] ScotCS 68 |
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Lord Justice Clerk Lord McCluskey Lord Cameron of Lochbroom |
020/17(6)/98
OPINION OF THE COURT
delivered by LORD McCLUSKEY
in
APPEAL
From the Sheriffdom of Glasgow and Strathkelvin at Glasgow
by
ROBERT JOHNSTONE MACKINNON Appellant and Noter;
in the cause
HURST FUELS LIMITED Pursuers;
against
DUNDONALD HOUSE LIMITED Defender:
_______ |
Act: Party (Noter and Appellant)
Alt: Davidson, Q.C.; Shepherd & Wedderburn, W.S. (Defenders and Respondents)
5 March 1999
The appellant is the Noter in a Sheriff Court process in which, in 1988, Hurst Fuels Limited obtained a winding-up order under the Insolvency Act 1986 ("the Act") in respect of Dundonald House Limited ("the company"), a company incorporated under the Companies Acts and having its registered office at 23 Royal Exchange Square, Glasgow. John Dickson Laurie, C.A., was appointed liquidator of the company on 26 July 1988. The company was at the date of the winding-up order operating the business of a residential home for the elderly. The appellant was a major shareholder in the company. In November 1996, the appellant, having become a creditor of the company, entered the winding-up process by Note and craved the court to exercise certain powers available under section 212(3) of the Act. He craved the court to examine the conduct of the liquidator and to require him to give an account of his intromissions and actings as liquidator. A second crave invited the court to find and declare that the liquidator was in breach of his duty to distribute to the creditors of the company (including the Noter) the assets of the company after they had been ingathered and realised. In the third crave the Noter sought an order upon the liquidator to contribute to the assets of the company such sum as would be found to be necessary to enable the company's debts to be paid in full and, in particular, to enable the Noter to recover a debt said to be owed to him amounting to £1,407, with interest on that sum. The appellant's title to sue rested upon his having become a creditor of the company by virtue of an assignation dated 14 October 1996, intimated to the liquidator on 28 October 1996, whereby a creditor with an acknowledged claim, McDonald (Oils) Limited, assigned the said debt and its claim for that debt to the Noter. The Noter's application under section 212(3) fell to be treated as a summary application.
The basis of the Noter's claim was set forth in the pleadings contained in the Initial Writ. The essence of the case averred by him was that the liquidator decided that the company should continue trading after 26 July 1988, that by 31 January 1989 the liquidator had ingathered all of the company's assets and there was a surplus of nearly £5,000 in the company's assets, after provision for payment in full of all the company's debts; that there was ample cash available then and for some months thereafter. This state of affairs, it was said, was not known to the creditors at that time. It was further averred that, despite the solvent position of the company, the liquidator did not distribute the monies ingathered to the creditors as he should have done. He decided to continue trading; but traded at a loss. He did not pay off the company's creditors and eventually produced a situation in which it was impossible to pay the creditors in full. Furthermore, it was averred, the liquidator incurred further fees and costs unnecessarily and was is said that these further fees and costs exceeded £140,000. The averments gave further details of the alleged actings of the liquidator and their consequences and it was asserted that the liquidator failed in his duties under the Insolvency Act 1986 and, in particular, his duties under section 143(1).
The liquidator lodged Answers to the Condescendence of the Noter. For present purposes it is sufficient to note that, in addition to denying the breaches of duty alleged, the Answers for the liquidator contained averments inter alia to the effect that: (1) the Noter had twice complained to the Institute of Chartered Accountants of Scotland about the liquidator's conduct in the litigation and that in October 1992 the Investigation Committee of that Institute found no case of misconduct made out against the liquidator and affirmed that conclusion after the second complaint on behalf of the Noter; (2) the Noter had raised two separate Court of Session actions against the liquidator seeking, inter alia, to recover from the liquidator the sum of £1m, and in each of the actions the averments were to a similar effect as those in the Note in the winding-up process, that both Court of Session actions were dismissed in November 1994 through lack of insistence, and that the liquidator had great difficulty and experienced considerable delay in obtaining payment of the expenses awarded in his favour against the Noter in those actions; (3) the liquidator had petitioned for the Noter's sequestration and had been awarded expenses in respect of the petition for sequestration and that the Noter had failed to pay the expenses, taxed at £2,425.92; (4) the liquidator's actings had been approved by the Committee of Creditors, and that none of the other creditors in the liquidation had expressed dissatisfaction with the liquidator's conduct of the liquidation and none would conjoin with him in his Note and application to the court; (5) that by Minute of Agreement with the liquidator, dated 5 and 6 November 1991, the Noter and Miss Margaret Paterson Archer agreed that
"Miss Archer and Mr. Mackinnon hearby discharge all and any claims competent or which may become competent to them against the Liquidator arising out of or in any way connected with the performance by him of his duties as Liquidator in connection of the winding up of the company".
On the basis of that Minute of Agreement the liquidator advanced a plea-in-law to the effect that the Noter was barred from insisting on the application under section 212(3). Both parties took general pleas to the relevancy and the Sheriff, after allowing parties to adjust their pleadings, allowed parties a hearing on 10 June 1997.
The detailed history of what happened thereafter is set forth in a Note prepared by the Sheriff and appended to an interlocutor dated 9 July 1997 and in a further Note, prepared by the Sheriff Principal, and appended to his interlocutor of 8 January 1998. In summary, what happened was that at the hearing on 9 June 1997 the Sheriff heard argument from the agent for the liquidator in support of the plea that the Noter was barred from proceeding with the claim by virtue of the clause which we have quoted from the 1991 Minute of Agreement. The Sheriff also heard counsel for the Noter in reply in relation to this preliminary matter. The Sheriff suggested that it might be appropriate for him to make avizandum on that issue and determine it before hearing arguments in respect of the relevancy pleas. The parties, however, indicated that they wished him to hear argument on all the matters to be raised at the hearing and to obtain a decision on all the matters debated. The debate continued, with the liquidator's agent presenting submissions in relation to relevancy. At the end of that first day of the hearing it became apparent that additional court time would be required to complete the debate and it was arranged that 16 and 17 July 1997 would be set aside for that purpose. The agent for the liquidator then intimated that he wished there and then to make a motion for caution for expenses. The Sheriff decided that, as no intimation had been given of this motion to the Noter, he should deal with that matter on 12 June 1997 and fixed a diet on that date for parties to be heard on that motion. On 12 June 1997, after hearing parties' procurators in respect of a motion to ordain the Noter to lodge caution, the Sheriff ordained him to lodge caution in the sum of £10,000 no later than 9 July 1997. The interlocutor of 12 June 1997 is referred to for its terms. On the Noter's motion the Sheriff granted leave to appeal the interlocutor. It is clear that the Sheriff did not write any Note at that stage explaining the reasons for his decision and it does not appear that any party asked him to do so. After further incidental procedure, on 9 July 1997 the Sheriff pronounced an interlocutor in the following terms:
"The Sheriff in respect that the Noter has failed to find caution in terms of the interlocutor dated 12 June 1997 and having heard parties' procurators on the Liquidator's motion for absolvitor or alternatively for dismissal of the Note, No. 3 of process, dismisses the said Note and finds the Noter liable to the Liquidator in the expenses of said Note, as taxed; allows an account thereof to be given in and remits same when lodged to the Auditor of Court to tax and to report: discharges the hearing previously assigned for 16 and 17 July 1997".
To that interlocutor, the Sheriff appended a substantial Note setting forth a summary of the history of the matter and explaining why he ordered the Noter to lodge caution in the sum of £10,000. He explained that he reached the view that the Minute of Agreement was effective to bar the Noter from advancing the claims sought to be advanced in the present Note. In relation to that matter, he concluded "On this issue alone, I took the view that I would have been entitled to order caution". He continued, however, to state that "...even if I was wrong on the view that I had taken on the interpretation of the Minute of Agreement, various other issues made it appropriate that caution should be granted". He then specified seven other matters. In summary these were: (1) that the Institute of Chartered Accountants had twice considered the matters raised in the summary application and acquitted the liquidator of misconduct; (2) that the two Court of Session actions had been dismissed for want of insistence and had resulted in awards of expenses against the Noter, which expenses were not paid for more than two years after being awarded; (3) that no other creditor had joined in the present Note and the Committee of Creditors had approved the liquidator's actions; (4) that the Noter's title to sue rested upon his having purchased, for £100, a claim which, if the winding-up process were to be concluded would result in a payment to the Noter of between £500 and £600; (5) that the creditors would be the losers, in respect of the liquidator's costs, if the Noter failed in the present process; (6) that the Noter, was discharged from bankruptcy in 1993, and (7) that he conceded at the bar that he was impecunious.
The Noter appealed to the Sheriff Principal. Anticipating the law as later explained in McCue v. Scottish Daily Record & Sunday Mail Ltd. 1998 S.C. 811, the Sheriff Principal concluded that it was not incompetent for the Noter in an appeal against the final interlocutor of 9 July 1997 to bring under review the earlier interlocutors including, in particular, that of 12 June ordaining caution. He expressed doubt as to whether, in relation to the effect of the said Minute of Agreement, it was necessary for the Sheriff to have gone the length of deciding that point against the Noter and stated, "It might have been sufficient for the Sheriff to have expressed the view that the Noter's right to proceed was doubtful". He took note, however, of the fact that the Sheriff had recorded that, even if he was wrong on his view regarding the Minute of Agreement, a number of other issues made it appropriate that caution should be granted. This is, of course, a reference to the seven matters mentioned earlier. The Sheriff Principal referred specifically to numbers (2), (3), (5) and (7) and said:
"These were all factors which the learned Sheriff was entitled to take into account and I cannot see that the approach which he took to the 'personal bar' argument necessarily coloured his judgement to the extent of driving him to a conclusion which was wrong or manifestly unjust".
He noted expressly that "in relation to the finding of caution, this was undoubtedly a matter for the Sheriff's discretion".
In his Grounds of Appeal lodged in relation to his appeal to this court against all the interlocutors from and including 12 June 1997 to 20 January 1998, the appellant submitted several distinct arguments.
Although the appellant presented his submissions to us by reference to a paper containing 18 Grounds of Appeal, with Notes appended referring to statutes, reported cases and textbooks, it is unnecessary to discuss each of these in turn as there is some repetition. However, the essence of his argument as contained in the written Grounds of Appeal and elaborated in oral submissions may be re-stated as follows:
There is at least a prima facie case for a section 212 examination by the court of the conduct of the liquidator; indeed the case is not only stateable, it is strong. It has never been properly considered or enquired into by a court. Unfortunately, much of the information demonstrating the culpable errors of the liquidator was not available to creditors or others until long after the dates to which such information related. The ICAS investigations were no substitute for an examination by the court as provided for in the Act, and indeed those investigations and their outcomes were wholly irrelevant to the proceedings envisaged by section 212. In any event, they were deeply flawed because they were not based upon accurate, reliable and full information. The same general observation fell to be made about the approval by the Committee of Creditors of the liquidator's actings and fees. The fact that such earlier scrutiny of the liquidator's conduct was inadequate and resulted in error was the background to a recent request contained in a letter dated 8 December 1997 from a Mr. D.J.T. McKenzie C.A. to ICAS setting out a number of detailed items of information and requesting the Institute to review the case. That was the letter which had been brought to the attention of the Sheriff Principal and was referred to in his Note. Although the case for an examination by the court under section 212 was strong, and although the method prescribed for carrying out the investigation was by summary procedure in the Sheriff Court, the Noter's attempt to proceed with his application had been frustrated by procedural irregularities and obstacles which had no place in such summary proceedings. The hearing fixed for 9 June 1997 had been conducted unfairly and had resulted in serious prejudice to the Noter. Although it had been agreed that that hearing should take the form of a hearing on questions of law only, the agent for the liquidator had been allowed to introduce many misleading assertions of alleged fact, although they related to matters which were very much in dispute. Even more significant was the fact that, although parties both agreed that the Sheriff should not decide the issue raised by the liquidator's third plea-in-law (namely whether or not the Minute of Agreement barred the Noter from making a section 212 application) until after the whole debate had been completed, on 16 and 17 July 1997; the Sheriff in fact decided this issue on 12 June and made it the principal reason - as he stated orally in court - for requiring the Noter to find caution. At the same time he made the finding of caution a condition precedent of any further procedure; and also, despite granting leave to appeal in the interlocutor of 9 June, he did not write a Note explaining his reasons for ordering caution. Thus the appellant was denied a written judgment of the Sheriff on the important and, in the Sheriff's view decisive, issue. The result was that the Noter was denied the opportunity of appealing against what, it was submitted, was a plainly erroneous decision on the "personal bar" question. It was a true "Catch 22" situation in that the appellant could not appeal against the order for caution without first finding caution. The Noter was also denied the opportunity to present his arguments on the important questions of relevancy and procedure which were supposed to be discussed at the hearing starting on 9 June 1997. The Sheriff had been quite wrong, it was submitted, to entertain the motion for caution in the middle of a hearing at which the parties had agreed to debate the legal issues arising on the pleadings and, when it did not conclude on one day, had agreed to continue in July. When the Noter sought to remedy this irregularity by lodging a motion (No. 16 of process) the Sheriff simply refused it. Inevitably, the Noter, who had no funds, failed to find caution by the prescribed date and that result
It is, in our opinion, important to distinguish between what material might properly be placed before a court when the relevancy of the pleadings is being examined and the material that might properly be considered by the court, when faced with a motion to ordain one of the parties to the proceeding to find caution. In hearing a motion for caution it may well be appropriate and necessary to place before the court material which would not be relevant in a Condescendence and Answers. Thus, for example, the impecuniosity of the Noter, or the dismissal of his earlier attempts to obtain remedies in the Court of Session, or his failure to pay taxed expenses in earlier proceedings, might well be of doubtful relevancy in relation to whether or not the court should grant the section 212 application in whole or in part. These matters would, however, be highly relevant to the court's consideration of whether or not an order for caution should be pronounced. Equally, it is, in our view, quite clear that, in relation to the matter of caution, the court was perfectly entitled to have regard to the fact that two investigations by ICAS had concluded that there had been no misconduct on the part of the liquidator. Similarly the failure of any other creditor to associate himself with the Noter's application was a circumstance relevant to caution, given that the Noter was impecunious, had failed to pay taxed expenses and, if he caused further expense to the liquidator by failing in the present application, would thereby cause expense to the creditors, who must meet the liquidator's approved fees and outlays. It is also of the utmost importance to stress that a motion for caution may competently be presented at any time subject to the requirements of fairness in relation to such matters as notice. We reject the submission that the agent for the liquidator could not make, and that the Sheriff could not entertain, a motion for caution at the end of the first day of a hearing which was to be continued to a later diet. That motion was one which could properly be made at that stage in the proceedings and there was no bar to the making of it, or the considering of it, arising from the circumstance that the debate had not been concluded and that parties were agreed as to when it could be continued.
Next, we should emphasise that, although it is possible to have some sympathy for the argument that the Sheriff should have produced a Note to accompany the interlocutor of 12 June 1997 in order to explain the basis of his decision to ordain the Noter to find caution, there is no reason to conclude that the Noter has in fact been prejudiced by there being no such Note. The Sheriff, although he granted leave to appeal that interlocutor, was not invited to write a Note at that stage. And, in the event, by the time the case did come before the Sheriff Principal, the Sheriff had provided a full Note explaining his reasoning; and the Sheriff Principal allowed the Noter and appellant to submit that the interlocutors from and including 12 June 1997 should be recalled. Thus there was, in point of fact, no prejudice whatsoever to the Noter resulting from the fact that the Sheriff did not immediately append a Note to his interlocutor of 12 June 1997. Furthermore, although that interlocutor should not have included the words "makes finding said caution a condition precedent of the Noter proceeding with his Note", in point of fact the Sheriff did entertain additional procedural motions thereafter and dismissed the Note only when, on 9 July 1997, the Noter failed to find caution. Furthermore, this unnecessary and inappropriate provision in the interlocutor of 12 June had no effect whatsoever in preventing the Noter from proceeding with his appeal to the Sheriff Principal and arguing the whole matter before him. It is also clear that the Sheriff in ordering the Noter to find caution, and the Sheriff Principal in affirming that interlocutor, did not express any view to the effect that the case brought by the Noter was unstateable on the merits. On the question of personal bar, we agree with the Sheriff Principal that the Sheriff had no need to decide that matter in the way he did and that the appropriate course was to treat it, as the Sheriff Principal did, as raising a doubt as to the Noter's title to make the section 212 application.
In relation to the lodging by the Noter at the diet before the Sheriff Principal of the letter dated 8 December 1997 from Mr. McKenzie, C.A., we observe that that letter was lodged in support of a motion made at the outset of the hearing that the diet fixed for the appeal should be discharged. In relation to that, we consider that there is no basis for criticising the Sheriff Principal's decision that the sending of such a letter did not warrant further delay and postponement of the appeal on the separable issue of caution.
In one of his Grounds of Appeal, the Noter suggested that the Sheriff Principal was wrong to express the view that the Sheriff had a discretion in relation to the matter of caution. However, he withdrew that submission when presenting his arguments to this court. It is trite law that the judge of first instance has a judicial discretion to exercise on this matter. We agree with the Sheriff Principal that the factors referred to by him, leaving aside the so-called "personal bar" point, were ample to justify the decision taken by the Sheriff. If it were necessary, we could go further and express the view that the Sheriff reached the right decision on the basis of the seven matters listed by him. In particular, it is clear that the appellant and Noter rests his title upon the assignation to him of the debt and claim of McDonald (Oils) Limited His claim is therefore worth something of the order of £1,400, plus interest, if he succeeds entirely in his application under section 212. The appellant and Noter does not, however, claim that his real interest in the matter is just to vindicate that relatively small financial claim. In his submissions to this court he made it abundantly clear that he was seeking in effect to vindicate the position of the company on the basis that the winding-up could and should have been terminated early in 1989 when, had the liquidator properly performed his task, he would have realised that the company was solvent and the debtors could be paid in full. The weakness, however, of the position of the appellant and Noter on this matter is that none of the other creditors supports him in this application. No doubt if this application were to succeed all the creditors would be likely to gain some benefit. However, it is equally clear that if the application were to fail, it is the other creditors who would require to meet the costs of the liquidator in contesting this application if, as seems highly probable, the appellant and Noter is wholly unable to meet the liquidator's costs in the present process. Thus those creditors have a strong interest in the matter, and the court is perfectly entitled to take note of their decision not to support the appellant and Noter whose claim is very small indeed compared with theirs. The Sheriff Principal was, in our view, quite right to have regard to the fact that in two previous Court of Session actions the appellant and Noter had failed to pursue his claim against the liquidator and had caused substantial delay and expense by pursuing those abortive proceedings. The impecuniosity of the Noter and appellant and his failure to pay taxed expenses exceeding the amount of his claim in this Note are also highly relevant to the decision to order caution.
There is nothing else in the Grounds of Appeal that requires distinct consideration.
In the circumstances, this appeal fails.
