Annulling gratuitous alienations no breach of human rights, judge rules

The statutory provision striking at gratuitous alienations by a person made bankrupt within two years afterwards, without a discretion in the court as to whether to make an order against the transferee, does not contravene the European Convention on Human Rights, a Court of Session judge has ruled.

Lord Armstrong in the Outer House gave his decision in granting decree in favour of the Accountant in Bankruptcy, in a action seeking payment of £172,895, said to be the amount of a gratuitous alienation by John Walker, who was sequestrated on 1 April 2009, to his then wife Pauline, the defender in the action.

The defender and the debtor married in November 2007 and divorced in August 2010. Around December 2007, the debtor sold a house in Rutherglen and mandated the net free proceeds to the defender. These were put towards the purchase of a house in her name, to be used as a matrimonial home, the balance being met by the sale of her own property, and a mortgage. The defender averred that the sum transferred was a gift in contemplation of marriage, that although the parties separated in January 2008 she continued to reside in the property with her son and daughter and to maintain it without contribution from the debtor. The property had suffered a substantial fall in value, and granting decree would mean her losing her own contribution; she and her children would lose her home and she would be sequestrated.

For the defender it was argued that the defences to such an action, in s 34(4) of the Bankruptcy (Scotland) Act 1985, had no regard to the circumstances of the alienation, or to the reasonableness or proportionality of making the order sought, or to the personal or financial circumstances of the person against whom the order was sought. Section 34(4) was therefore incompatible with her and her family's rights under articles 6, 8, 14 of, and article 1 of the First Protocol (A1P1) to, the ECHR, and should be read down by allowing the court to consider the circumstances of the person against whom an order was to be made, and the nature and extent of any order to be made. Alternatively, she sought a declaration of incompatibility. 

She maintained that previous cases ruling that the court had no discretion had been wrongly decided. Under human rights case law the lack of availability of compensation for her was also relevant. Proof should be allowed in relation to her circumstances.

Repelling the defences, Lord Armstrong said it was accepted that in matters of discretionary judgment, involving a balance between the competing interests of the need to protect an individual’s rights, on the one hand, and of the general interest of the community, on the other, in the implementation of social or economic policy, Parliament was to be afforded a wide margin of appreciation. Parliament had deliberately chosen to allow a discretion to the court in cases under s 35 of the Act, but not those under s 34 or 36. "Where that was done for good reason," he continued, "I accept that it was for Parliament to assess the advantages and disadvantages of the legislative alternatives, having regard to the aim sought to be achieved... In such circumstances, it must be recognised that the court will be slow to intervene, unless it can be shown that the relationship of proportionality between any particular aim sought to be realised by a legislative measure, and the means employed to achieve it, is unreasonable...

"Given the extent of the public and general interest in effecting and maintaining that protection, and the defences which are afforded by s 34, I am not persuaded that, in giving effect to the provision, any interference with the defender’s possessions, as defined for the purposes of A1P1, is unjustified or disproportionate."

He rejected the defender's other arguments, noting that it did not necessarily follow that the grant of decree would result in her losing her family home.

"In the whole circumstances," he concluded, "I am not persuaded that the terms of s 34(4) are unjustified, arbitrary or disproportionate. Rather, for the reasons submitted by the pursuer and the minuter, I find that the terms of the section strike an appropriate balance between its legitimate aim and the means of securing that aim, and that the degree of interference which might impact on the defender’s rights, is proportionate to the need to protect the interests of the general body of creditors, in the wider public interest. On that basis, I determine, in particular, that s 34(4), as currently interpreted, is compatible with the European Convention of Human Rights."

Click here to view the opinion.