Final means final (or does it?) Supreme Court confirmation in Dooneen v Mond

Empty vintage court's room with table, chairs and microphones. Print publication

26/11/2018

The Supreme Court has handed down judgment in Scottish case Dooneen Ltd v Mond [1], giving important clarity for creditors, debtors, trustees and financial institutions as to the correct construction of the words “final distribution” in a voluntary trust deed.  Walker Morris’ Banking and Finance Litigation partner Rob Aberdein explains and considers what the decision might mean for future cases.

Background

In 2006, Mr Davidson granted a trust deed in favour of his creditors, and Mr Mond was appointed as trustee. In 2010, Mr Mond made what was described as a “first and final dividend” to the creditors of 22.4 pence in the pound. Clause 11 of the trust deed stated that final distribution by the trustee of Mr Davidson’s estate would effectively terminate the trust deed. Following the distribution under the trust deed, Mr Davidson was discharged from any additional obligations to his creditors.

In January 2015, Mr Davidson became aware that a claim for mis-sold Payment Protection Insurance (PPI), dating from before the trust deed was entered into, formed part of his assets. Dooneen Ltd was appointed to manage the claim, and in April 2015 compensation of £55,000 was awarded. It was agreed by both parties that, although its existence was then unknown, the claim had vested in Mr Mond at the date the trust deed was executed. The issue was whether Mr Davidson or Mr Mond was entitled to receive the compensation award.

Case

The Lord Ordinary and, on appeal, the Inner House agreed with Mr Davidson, concluding that once a debtor has been discharged, then any subsequently identified PPI claim will form part of the debtor’s assets, not the trustee’s.

Mr Mond appealed all the way to the Supreme Court, where he contended that, regardless of whether or not he as trustee knew of all of the assets, a “final distribution” can only occur when either all assets are distributed or enough assets are distributed so as to pay all creditors in full.

Supreme Court confirmation

The Supreme Court rejected this contention and unanimously dismissed the appeal, confirming that Dooneen Ltd and Mr Davidson were entitled to the PPI compensation. The court felt that accepting Mr Mond’s construction would have consequences which the debtor would not have intended when granting the deed, namely that:

  • one could never be certain whether any distribution was in fact final, meaning that a trust deed could potentially last indefinitely;
  • it would be impossible for the debtor or anyone doing business with him to know with confidence that he has been finally discharged of his debts; and
  • Mr Mond’s construction would undermine the purpose of Register of Insolvencies (where certificates are registered signifying that a final distribution had been made) as it could no longer be relied upon as accurate.

WM Comment

The Supreme Court’s decision provides clarity to debtors, trustees and banks as to the correct construction of the words “final distribution” in a voluntary trust deed. It is understood that the wording at Clause 11 of the trust deed was widely in use at the relevant time (although not at present) so the outcome of this case will likely affect a number of historic trust deeds. The decision will therefore be welcomed to the extent that it offers some certainty as to the strict letter of the law.

In a postscript to the judgment, however, Lord Reed noted that it is scarcely a satisfactory outcome where an asset which vested in the trustee for the benefit of the creditors and ought to have been applied to payment of the debts due to them, will instead be paid to the debtor merely because the trust was administered in ignorance of its existence.

To try to address that issue, the court had, prior to the hearing of this appeal, suggested that the parties make submissions regarding whether the acts of a trustee might be reduced (set aside) if they were the result of a mistake as to the extent of the debtor’s assets.  However, the parties declined to do so.

It therefore remains to be seen whether or not trustees or creditors in similar circumstances will wish to test this argument. (Given the apparent reluctance with which the current decision was reached by the Supreme Court and its postscript, it does seem possible that a court might look kindly on an application for reduction of the trustee’s act of declaring final distribution in similar circumstances in a future case.)

____________________

[1] Dooneen Ltd (t/a McGuinness Associates) and another (Respondents) v Mond (Appellant) (Scotland) [2018] UKSC 54

 

Contacts