The recent Opinion of Lord Brailsford in Grimshaw –v- Bruce considers an issue which, it is surprising to note, does not appear to have arisen previously in the 25 years since the Bankruptcy (Scotland) Act 1985 came into force. The result will lead to many personal injury lawyers carefully checking the register of insolvencies.

The action in question was a relatively straightforward personal injury matter in relation to injuries sustained in March of 2008. In September 2008 the defender was sequestrated. By operation of the Bankruptcy (Scotland) Act 1985 the defender received his automatic discharge in September 2009.

In the action the defender sought to be absolved on the basis that the effect of his automatic discharge was to discharge him from liability for "pre-sequestration" debts. Because the accident had occurred pre-sequestration, he had no remaining liability for the accident and the action must accordingly fail.

Arguments for the pursuer

The injured party sought to maintain that the defender was liable on three grounds:

1. That the liability for this injury was not one which the defender had informed his trustee about. As a result it should survive, as appears to be the case under English law.
2. That the automatic discharge did not discharge "contingent" debts, and this was a contingent debt as it's enforceability was dependent upon the court finding in the pursuer's favour.
3. Finally, that interpreting the 1985 Act strictly would lead to an unfair result as it deprives the pursuer of a remedy for an injury they have sustained.

Decision

Lord Brailsford found in favour of the Defender and granted decree of absolvitor. In doing so he considered the three arguments put forward by the pursuer as follows:

1. That, unlike English law, there was no express statutory provision that a debt which had not been notified to the trustee would survive sequestration. Whilst that may be a breach of the debtor's obligation to make full disclosure, the consequences of that were criminal in nature and were set out in detail in the Act. The pursuer's first argument accordingly failed.
2. That liability for a delictual act was not a contingent liability. If the court makes an order, they are effectively declaring the liability which arose at the time of the act taking place. Liability does not accordingly begin on the date of a judgment in the pursuer's favour.
3. That there was no justification in departing from the usual rule of statutory interpretation that the plain or ordinary English meaning of the statute should be followed.

Result

The decision may have wide-ranging consequences, not least for those engaged in the practice of pursuer personal injury. Clearly if a defender is not liable, then nor can their insurers.

In the first place best practice must now be to include a search at the outset in the register of insolvencies to ensure the prospective defender has not been sequestrated. If they have, and their automatic discharge has passed, it seems unlikely that any claim will survive (although it may be that the trustee is still administering the estate, in which case inquiries should be made as to whether a claim can be submitted).

If the automatic discharge date is close at hand, pursuers may wish to consider using their power as a creditor to seek a deferral of the automatic discharge under Section 54 of the 1985 Act in order to allow proceedings to be raised.

For insolvency practitioners, it will be worth making inquiries of the debtor at the initial interview as to any accidents they may have been involved in the recent past, as a debtor will not always consider these to be "liabilities" of theirs, particularly if insurers are involved.

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