Outer House case in which a trustee in sequestration sought to challenge four securities and three dispositions granted by Mr Fortune.

Background
The trustee was appointed over the sequestrated estate of Mr Fortune in February 2011. As a result, Mr Fortune’s estate vested in the trustee (for the benefit of his creditors) on 24 December 2010.  Mr Fortune owned a number of properties in Edinburgh and attempted to grant a standard security of 4 of the properties and a disposition of 3 of the properties in favour of Medwin Investments (the deeds were registered in April 2014).

Arguments
Medwin argued that, in terms of s44(4)(c) of the Conveyancing (Scotland) Act 1924[1], as 3 years had passed since Mr Fortune had been sequestrated without the trustee having completed title to the properties, the properties subject to the standard securities and dispositions no longer vested in the trustee meaning that the deeds in favour of Medwin were immune from challenge by the trustee.

At the heart of this case was a procedural failure in the recording of a sheriff’s order (pronounced in December 2010). Where a petition for sequestration of the debtor’s estate is presented by a creditor, the sheriff to whom the petition is presented must grant warrant to cite the debtor to appear before him (in order to allow the debtor to show why sequestration should not be awarded). When the sheriff grants the order, the sheriff clerk must send a certified copy of the order to the keeper of the register of inhibitions and adjudications for recording[2]. In this case (for reasons unknown) the certified copy of the sheriff’s order was not recorded.

Decision
Lord Jones agreed with the trustee’s contention that, in terms of the legislation, the three year period leading to immunity from challenge in respect of the deeds granted in favour of Medwin was dependent on the recording the sheriff’s order. As the order had not been recorded, the three year period had not begun to run and therefore could not be said to have expired prior to registration of the deeds in favour of Medwin (meaning that the dispositions and standard securities were not immune from challenge by the trustee).

However, during the case an additional complication emerged in that solicitors acting for the trustee advised the court that the trustee had applied for an order[3] waiving failures to comply with requirements of the legislation and restoring parties to the position that would have occurred were it not for the failure. That application led to the sheriff pronouncing two interlocutors. The first (on 6 February 2014) amended the warrant to cite and ordained the sheriff clerk to intimate the interlocutor and the order of 24 December 2010 to the keeper whilst “reserving to pronounce further”. The sheriff clerk sent a certified copy of the interlocutor to the keeper and it was recorded on 11 February 2014. The second interlocutor authorised the Keeper to record the certified copy of the order of 24 December 2010 and a memorandum of renewal extending the 3 year period and was recorded on 22 May 2014.

Lord Jones found that, although the sheriff may not have intended the certified copy of the order to be recorded until he made the second interlocutor, it had in fact been recorded. The effect of this was to retrospectively trigger the beginning of the three year period (from the date sequestration) meaning that at the time the dispositions and standard securities were granted the three year period had expired (and consequently the deeds may potentially have been immune from challenge).

However, Lord Jones also found that, although the three year period had passed, the Trustee retained the personal right to the properties which had vested in her on 24 December 2010. And, although expiry of the 3 year period prevented the deeds being challenged on the grounds of sequestration, because Medwin was aware that the trustee had a prior personal right to the property when Medwin acquired title to the property, Medwin was acting in bad faith and the deeds could be challenged on the basis of that bad faith. As such the deeds were reduced.  (Essentially, Medwin had fallen foul of what is known as the “offside goals rule” [4] which protects a person with a prior right from a second party who appears later and knows (or ought to have known) of the prior right but nevertheless attempts to obtain rights to the property anyway.)

The full case report is available from Scottish Courts here.

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[1] “No deed… granted… by a person whose estates have been sequestrated under … the Bankruptcy (Scotland) Act 1985,… relative to any land or lease or heritable security belonging to such person at the date of such sequestration or subsequently acquired by him shall be challengeable or denied effect on the ground of such sequestration if such deed… shall have been granted… at a date when the effect of recording… under subsection (1)(a) of section 14 of the Bankruptcy (Scotland) Act 1985 the certified copy of an order shall have expired by virtue of subsection (3) of that section, unless the trustee in such sequestration shall before the recording of such deed… in the appropriate Register of Sasines have completed his title to such land… or heritable security by recording the same in such register…”

[2] In terms of s14(1)(a) of the Bankruptcy (Scotland) Act 1985.

[3] In terms of s63 of the Bankruptcy (Scotland) Act 1985.

[4] The rule is described in Rodger (Builders) Ltd v Fawdry and Others 1950 S C 483.

This is an Outer House case in which Mr Hann (the executor of the late James Wheeldon) sought reduction of a will (and confirmation on the will) which purported to leave property (Powfoot Hall) to the son of the late Doris Spence.

Mr Wheeldon had a business relationship with Mrs Spence, and in fulfilment of certain informal agreements between them, he conveyed Powfoot Hall (were he had lived for 43 years till his death in 2007) to her in 1987. In 1994 Mr Wheeldon and Mrs Spence made a further informal written agreement containing the following clause:

“… As affairs between … [Mrs Spence] … and … [Mr Wheeldon] … are now agreed by both parties concerned and fully settled, and the title deeds to the Powfoot Hall are hereby returned to … [Mr Wheeldon] …. who now assumes full legal title to Powfoot Hall on 20/12/1993 and becomes owner of said property…”.

However Mrs Spence died in 2003 without having conveyed Powfoot Hall back to Mr Wheeldon, and by her will of 2002, she left the property to her son.

After considering prior authority[1], Lord McEwan found that Mrs Spence had bound herself to leave the property to Mr Wheeldon during her lifetime notwithstanding the fact that her son may have taken it in good faith. Consideration was also given to the possible application of the offside goals rule[2]. However, Lord McEwan found that the rule did not apply in this case:

“Much was made of the “offside goal rule” in the very good natured debate before me where metaphors were freely mixed and, I suspect, both counsel knew more of soccer than I.

If I can continue in the same vein, I think the “offside goal rule” was intended to strike at bad faith; the player knowing he is out of position yet trying to secure a benefit from the offside place on the field of play. This is what Rodger is about. It does not deal with the player who takes an advantage gratuitously and who may not be offside. The problem is that the player [Mrs Spence] who passes the ball to him [Mr Wheeldon] has broken the rules and the pass is invalid.

Whether Lord Kincairney in 1893 was an aficionado of the beautiful game I know not. Even by then the game had rules. It was not called offside in those days but since the rules of football were formulated by the gentleman players of the English public schools in 1863 there was a prohibition against playing the ball if you were “out of play” (Rule 6) (See Melvyn Bragg: “Twelve books that changed the world” p102).

In my opinion this case does not depend on the doctrine in Rodger but on the principles set out in Paterson, dealing as it does with succession and not property and titles.”

The full judgement is available from Scottish Courts here.