Wed 06 Jul 2016

Insolvency Update: Donnelly v The Royal Bank of Scotland plc

On 16 June 2016 this matter came before the Sheriff Appeal Court in respect of a motion by the bank to remit the cause to the Court of Session in terms of section 112(2) of the Courts Reform (Scotland) Act 2014.

The basis for the motion was that:

(a) the appeal deals with many complex and novel points of law including vesting of assets in insolvency, classification of obligations, the common law principle of balancing of accounts in bankruptcy, the effect of discharge in insolvency and specific aspects of prescription;

(b) the subject matter of the appeal is of great importance to the bank and has wider implications for them and other banks, for those standing behind the appellant, for consumers generally and for those in the general field of insolvency.

The case is an interesting one with the decision appealed being that given by Sheriff Reid at Glasgow on 11 February this year. The dispute was in relation to the bank's right to withhold payment of a PPI claim on the basis of set off against a greater debt due by the pursuer with the complication that, between the date of the loan agreement and related PPI sales (1997 and 2003 respectively) and the dates of the PPI agreements (2014) the pursuer had signed a trust deed in favour of her creditors.

The bank had argued that it was entitled to invoke the principle of balancing of accounts in bankruptcy and set-off its debt against that due by the pursuer. The pursuer argued that such set-off had no application because she was no longer insolvent, having been discharged from her trust deed and that the effect of the discharge was to extinguish any obligation that she may have had to make payment of any outstanding loan balance due to the bank at the date of her insolvency.

The Sheriff had determined that the bank was entitled to plead set off which extinguished the debt due to the pursuer. In disposing of the defender's motion to remit, the Sheriff Appeal Court made it clear that it did not consider that the points of law were sufficiently complex to justify a remit and that the Sheriff had set out the legal issues with great clarity. The court also considered that the matter was not of sufficient national or public importance to justify a remit while accepting that the dispute could not be regarded as only relevant to the two parties engaged in the current litigation. Accordingly the court refused to remit the case to the Court of Session.

It will be interesting to see the Sheriff Appeal Court's decision in this appeal. The Sheriff's decision was detailed and it is difficult to fault what he said in relation to the application of set-off in insolvency. However, the Sheriff essentially equates sequestration with trust deeds and concludes that the process of being discharged from debts is much the same in one process as it is in another. The difference, of course, between the two processes is that a trust deed is essentially a contractual document between the debtor and his trustee. One wonders whether, when faced with these sort of questions in a trust deed (as opposed to sequestration) it is necessary to actually consider in detail the terms of the trust deed, as it is these terms that would ultimately be determinative of whether the debtor is discharged from debts or not, and indeed when she is discharged.

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