The facts
Outer House case in which a trustee in bankruptcy sought declarators and reductions relating to a series of conveyancing transactions which followed an alleged fraud on the part of a bankrupt (Mr Pocock).

The transactions related to the sale of a property at Queen’s Gardens in Aberdeen. The trustee discovered that a disposition of the property by Skene Investments in favour of Mr Pocock had not been registered and that a second disposition in favour of Howemoss Properties Limited had been lodged with the Keeper.  Various transactions had then taken place in reliance on the Howemoss disposition. However, the trustee contended that Skene had not executed the Howemoss disposition and believed it to be an unauthorised alteration of the original disposition, the price and purchaser having been altered without Skene’s consent.  (Although he did not know the purpose of the alteration, the trustee believed that it may have been altered to avoid payment of stamp duty.)

The Trustee sought declarator that the Howemoss disposition and various dispositions and standard securities based on it were a non domino (i.e. by someone who is not the owner).  He also sought declarator of the tenor of the first disposition which be believed to have been lost or destroyed.

Proving the tenor of the original disposition
It was argued by the parties who transacted on the strength of the Howemoss disposition (the third parties) that it was not open to the trustee to prove the tenor of the first disposition as, rather like tearing up a will, the act of destroying the deed meant the rights created by it were lost and the trustee was in no better a position than Mr Pocock. That argument was rejected by Lord Uist who found that, in such circumstances, whether a person was precluded from proving the tenor of a deed would depend on, the nature of the deed, by whom it was destroyed and for what purpose.  In this case Lord Uist saw no reason why there should be any legal bar to the trustee proving the tenor of a disposition in favour of Mr Pocock.  Mr Pocock had paid a purchase price of £207,125 and the trustee claimed Mr Pocock had deliberately destroyed the deed order to conceal the fact that he had purchased the property.  It would be a denial of justice if the trustee were not allowed to prove the tenor of the original disposition.

The tantum et tale principle
The third parties also argued that, as a result of the tantum et tale principle, the trustee took Mr Pocock’s estate exactly as it stood in Mr Pocock’s hands at the time of the sequestration. Thus, if Mr Pocock were unable to prove the tenor of the original disposition or reduce the subsequent writs (as a result of personal bar or by the effect of his own fraud), then so too would the trustee.

However, after considering the terms of the Bankruptcy (Scotland) Act 1985 and Burnett’s Trustee v Grainger (2004), Lord Uist found that the tantum et tale argument has been discredited. Applying Burnett’s Trustee to the present case:

“the relevant picture is not of the permanent trustee stepping into the shoes of the bankrupt, but of the bankrupt’s estate being taken from him and placed in the hands of a completely different individual, the trustee for the bankrupt’s creditors, which suggests that in so far as the bankrupt himself may be subject to personal obligations, those obligations do not affect this new person, the permanent trustee.”

And with regard to fraud:

“the cases show that a trustee in bankruptcy cannot benefit from the fraud of the debtor which enlarges the estate for distribution, but that is patently not the case here. If anything, it is the contrary: the trustee’s position is that Mr Pocock fraudulently alienated part of his estate and he now seeks to reclaim, for the benefit of the whole body of creditors, the property so alienated. What the trustee is seeking to do is to annul a fraud which has wrongfully diminished the bankrupt’s estate, not benefit from the bankrupt’s fraud in order to enlarge the estate.”

The full judgement is available from Scottish Courts here.

(See appeal to the Inner House here.)

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.