COUNSEL: Radcliffe, K.C., and Pringle, for the appellant.

Rawlinson, K.C., and H. Dobb, for the respondents.

 

SOLICITORS: Heath & Hamilton; Julius A. White.

 

JUDGES: Lord Loreburn L.C., Lord Macnaghten, Lord James Of Hereford, and Lord Dunedin.

 

DATE: 1910 June 23.

 

 

Attachment of Debts – Scottish Judgment – Extension to England – Garnishee Order Nisi – Service on Garnishee – Subsequent Bankruptcy of Judgment Debtor in Scotland – Rights of Trustee in Bankruptcy – Bankruptcy Act, 1883 (46 & 47 Vict. c. 52), s. 117.

 

A judgment for a sum of money which was obtained in an action in Scotland was extended to England under the Judgments tension Act, 1868, and the judgment creditor served a garnishee order nisi on a firm who owed a debt in England to the judgment debtor.

 

After the service of the garnishee order nisi the whole estate of the judgment debtor was sequestrated under the Scottish bankruptcy law and transferred wherever situated to the appellant as trustee for the creditors with power to recover all estates, debts, or money due to the judgment debtor. In an interpleader issue in England between the trustee and the judgment creditor as to their respective claims to the garnished debt:–

 

Held, that the judgment creditor had by the service of the garnishee order nisi obtained an attachment in England before the date of the sequestration, and that the Scottish Court had no power to interfere with his claim.

 

Decision of the Court of Appeal, [1910] 1 K. B. 339, affirmed.

 

THE facts material to this appeal are stated in the head-note. The dates are as follows: October 23, 1908, judgment for 311l. and costs in an action in Scotland by Grimshaw and another against Merrens & Sons; October 26, judgment extended to England; October 27, garnishee order nisi in respect of 400l. owed to Merrens & Sons in England served upon the firm in England who owed the 400l.; November 12, sequestration in Scotland of the estate of Merrens & Sons; December 7, confirmation of the appellant as trustee of the sequestrated estate.

 

In the interpleader issue between the appellant and the respondents (Grimshaw and another) as to their respective claims to the garnished debt Ridley J. gave judgment for the appellant. This decision was reversed by the Court of Appeal [*509]

 

(Farwell, Buckley, and Kennedy L.JJ.), who entered judgment for the respondents. Hence this appeal.

 

June 22, 23. Radcliffe, K.C., and Pringle, for the appellant. The garnishee order nisi did not transfer the property in the sum garnished from the judgment debtor, nor did it create a charge. There is in our law no term which exactly defines the right of a garnishor, which has been described as a lien or security; it is something like a distringas on stock. A receiver in a debenture-holders’ action is entitled to precedence over the garnishor, although appointed after the garnishee order: Norton v. Yates (1); Geisse v. Taylor (2); Cairney v. Back.(3) A garnishee is but a stakeholder. In Rogers v. Whiteley (4) Lord Watson said: “The effect of an order attaching all debts …. is to make the garnishee custodier for the Court, of the whole funds attached.” In In re Combined Weighing and Advertising Machine Co. (5) it was held that a garnishee order does not create between garnishor and garnishee any debt either at law or in equity. Holmes v. Tutton (6) was like the present case, and the title of the assignees in bankruptcy prevailed.

 

The Court will recognize and give effect to a foreign bankruptcy: Sill v. Worswick. (7) In Solomons v. Ross (8) the title of the administrator of “desolate” estates in Holland was preferred to that of a person who had, like a garnishor, attached moneys of the bankrupt. A similar order with respect to Irish property was made in Neale v. Cottingham (9), referred to in the same note, and in Jollet v. Deponthieu. (10) The question must be decided according to Scottish and not English law.

 

Rawlinson, K.C., and H. Dobb, for the respondents. By the order of the King’s Bench Division the respondents acquired a lien or charge for the money lodged in Court by the garnishees, and that charge had priority to the rights of the appellant. The money was bound in the hands of the garnishees. The garnishees could not pay the money due to the bankrupt to any one else

 

(1) [1906] 1 K. B. 112.

 

(2) [1905] 2 K. B. 658.

 

(3) [1906] 2 K. B. 746.

 

(4) [1892] A. C. 118, at p. 122.

 

(5) (1889) 43 Ch. D. 99.

 

(6) (1855) 5 E. & B. 65.

 

(7) (1791) 1 H. Bl. 665.

 

(8) (1764) 1 H. Bl. 131, n.

 

(9) (1764) 1 H. Bl. 133, n.

 

(10) (1769) 1 H. Bl. 132, n. [*510]

 

than the respondents. On the order’s becoming absolute the money attached becomes the property of the creditors. Sect. 117 of the Bankruptcy Act, 1883, is only machinery, and is no authority for introducing English law into a Scottish bankruptcy. When the garnishee order was obtained the rights of the Scottish creditors and of the appellant had not come into existence; they only arose on November 12, when the petition was presented. There is no authority for applying the provisions of s. 45 of the Bankruptcy Act, 1883, which require that an execution or attachment must be completed in order to prevail over the trustee’s title, to Scotland. The question must be decided by English and not Scottish law. In the cases cited from Henry Blackstone time was the governing consideration and the title of the assignees in bankruptcy was prior to the garnishee order. On the effect of an arrestment, which is the equivalent of a garnishee order, Lord Deas’ judgment in Goetze v. Aders (1) supports the respondents.

 

Radcliffe, K.C., in reply.

 

LORD LOREBURN L.C. My Lords, in this case I think that the conclusion arrived at by the Court of Appeal ought to be supported.

 

To my mind your Lordships would be wise to apply the rule explained by Lord President Inglis in the case of Goetze v. Aders. (2) I think that rule is applicable in England also. The attachment in England will not prevail against a claim of a foreign trustee in bankruptcy which is prior in date, provided that the effect of the bankruptcy is to vest in the trustee the assets in question. If the attachment is prior in date, then I do not think it will be affected by the title of the trustee in a foreign bankruptcy; and the reason is that a foreign law making the title of the trustee relate back to transactions which the debtor himself could not have disturbed has no operation in England, while the English law as to relation back applies only to cases of English bankruptcy, and therefore the trustee may find himself (as in this case) falling between two stools.

 

I think, my Lords, in each case the question will be whether

 

(1) (1874) 2 R. 150, 155.

 

(2) 2 R. 150. [*511]

 

the bankrupt could have assigned to the trustee, at the date when the trustee’s title accrued, the debt or assets in question situated in England. If any part of that which the bankrupt could have then assigned is situated in England, then the trustee may have it; but he could not have it unless the bankrupt could himself have assigned it. It follows that the trustee cannot have this debt free from the garnishee order, because the bankrupt could only have assigned it on November 12, subject to the garnishee order.

 

My Lords, with regard to s. 117 of the Bankruptcy Act, 1883, I think that affects procedure and does not enlarge the rule to which I have alluded. And I am not prepared to accept and act upon the case which is scantily reported in the volume of Blackstone’s Reports to which we have been referred. (1) I am not prepared to accept that case as an authority against the rule which I have referred to.

 

I will not say, my Lords, that there may not be exceptions to that rule; as, for example, if the effect of the foreign bankruptcy were to transfer to the trustee only part of the assets of the bankrupt. Such points, to my mind, ought not to be settled or treated as settled except after consideration of the cases in which they actually arose. But I think it is enough to say in the present case I see nothing that should disturb the rule or the principle to which I have adverted.

 

LORD MACNAGHTEN. My Lords, this is rather a singular case. If the bankruptcy had been an English bankruptcy, the attachment, being uncompleted, would not have prevailed against the claim of the judicial factor or the trustee in bankruptcy. If the attachment, or the process in Scotland that corresponds more or less with attachment, had been pending there, the claim of the judicial factor or the trustee in bankruptcy must have succeeded. But, as it is, a creditor of the bankrupt having duly obtained an attachment in England before the date of the sequestration cannot, I think, be deprived of the fruits of his diligence.

 

It may have been intended by the Legislature that bankruptcy

 

(1) Solomons v. Ross, (1764) 1 H. Bl. 131, n. [*512]

 

in one part of the United Kingdom should produce the same consequences throughout the whole kingdom. But the Legislature has not said so. The Act does not say that a Scotch sequestration shall have effect in England as if it were an English bankruptcy of the same date. It only says that the Courts of the different parts of the United Kingdom shall severally act in aid of and be auxiliary to each other in all matters of bankruptcy. The English Court, no doubt, is bound to carry out the orders of the Scottish Court, but in the absence of special enactment the Scottish Court can only claim the free assets of the bankrupt. It has no right to interfere with any process of an English Court pending at the time of the Scotch sequestration. It must take the assets of the bankrupt such as they were at that date and with all the liabilities to which they were then subject. The debt attached by the order nisi was at the date of the sequestration earmarked for the purpose of answering a particular claim – a claim which in due course would have ripened into a right. With this inchoate right the Scottish Court had no power to interfere, nor has it even purported to do so. Therefore I think the appeal fails.

 

LORD JAMES OF HEREFORD. My Lords, I concur.

 

LORD DUNEDIN. My Lords, I concur with the opinions which have been delivered. I think that the general principle which underlies every bankruptcy system is that after bankruptcy the bankrupt is no longer really the owner of his own property, but holds his own property as trustee for the whole of his creditors for equal division. That carries with it necessarily the idea that some of his creditors may already have got security or may have taken part of the property in execution. And if the matter went no further than that it is quite clear that both of those positions would be good as against the bankrupt himself and consequently as against the rest of his creditors. It is a very natural development of that in working out a bankruptcy system that you should introduce a law of relation back, and that within a certain period, which will always be an arbitrary period determined by positive enactment, you should hold that the [*513] security given or the execution effected should have no effect and that that property should be like the rest of the property of the bankrupt.

 

Now so far as the general principle is concerned it is quite consistent with the comity of nations that it should be a rule of international law that if the Court finds that there is already pending a process of universal distribution of a bankrupt’s effects it should not allow steps to be taken in its territory which would interfere with that process of universal distribution; and that I take to be the doctrine at the bottom of the cases of which Goetze v. Aders (1) is only one example. But if you wish to extend that not only to the question of recognizing a process of universal distribution but also of introducing the law of relation back, then it seems to me you at once get into rather great difficulties, because the question at once arises, according to which law will you apply the doctrine of relation back? If you take the law of the country of the bankruptcy, then the execution` or security in question may be and often is of a kind which is quite foreign to the system of law which you are administering in the Bankruptcy Court. If on the other hand you take the law of the country of the attachment, then you have to administer a law which is quite ignorant of the precise execution or security with which it has to deal. Accordingly, to say the least of it, there has been quoted to us no instance where as a question of international law a Court has applied the rule of relation back, and certainly there are dicta of Lord President Inglis which seem to point completely the other way. Of course that would not prevent the matter being dealt with in the United Kingdom by means of positive enactment. I entirely concur with what fell from the noble and learned Lord on the woolsack as to the true meaning of s. 117.

 

Order of the Court of Appeal affirmed and appeal dismissed with costs.

 

Lords’ Journals, June 23, 1910.

 

(1) 2 R. 150.