The question of who is entitled to payment of compensation for PPI where a debtor has been discharged from his/her Protected Trust Deed (PTD) has given rise to conflicting judicial decisions in Scotland. In our previous article, we highlighted the uncertainty created following the decision of Sheriff Reid in the case of Donnelly v The Royal Bank of Scotland and the decision of Lord Jones in Dooneen Limited, t/a Mcginnes Associates and Douglas Davidson v David Mond.
Both cases were appealed. On 13 July, the Inner House of the Court of Session released its decision in the Dooneen case upholding the decision of the judge at first instance that the debtor was re-vested in the right to receive the compensation payment following the Trustees’ declaration of a “final dividend”. The attempts by Counsel on behalf of the former Trustee to suggest that, properly interpreted, the PTD only provides for such reinvestment once the creditors had been paid in full was rejected by the Court.
The Sheriff Appeal Court is still to hear the appeal in the Donnelly case. In a short decision issued last month, it refused a motion (which was ultimately a joint motion) to remit the case to the Court of Session, considering that the case did not raise a complex or novel point of law that would justify a remit to the Court of Session.
It will now be interesting to see how the Appeal Court deal with the Inner House’s decision in Dooneen. In particular, the Inner House’s finding that the final distribution acts “not only as the trigger for a discharge of the debtor by creditors, but, in effect a composition, whereby the trust deed…is ended and the debtor is entitled to be re-invested in any remaining trust estate”. While we do not know the terms of the termination clause within the PTD in the Donnelly case, it is likely to be very similar if not the same as the termination clause in the Dooneen case. Therefore, Sheriff Reid’s conclusion that the Bank’s debts continued until it was paid in full or there was a discharge on composition might need to be revisited in light of the Inner House’s decision.
However, until we have a decision from the Sheriff Appeal Court, there will still be questions regarding the ability of a Bank to set-off PPI claims against debts that form part of the PTD. What the Inner House decision does provide is a clear indication that unless the wording of the PTD makes it explicit that it was to continue until creditors were paid in full, creditors who have acceded to Trust Deed will be taken to have done so, knowing that there is a possibility of losing the chance to claim any worthwhile asset unknown to the debtor that unexpectedly comes to light after the Trustee had terminated the operation of the PTD.
Creditors who are asked to accede to a PTD need to be aware of this and we may see more creditors deciding to object to a PTD given the greater protections that are available through formal sequestration.
Following this decision, Insolvency Practitioners, may expect to receive more requests for information regarding closed cases from claims handling companies who are likely to step up efforts to identify debtors with potential compensation claims.
This article updates a previous article of 15 July 2016, which contains additional detail. It can be found here.