Burnett's Trustee v Grainger

The House of Lords held that, under section 31(1) of the Bankruptcy (Scotland) Act 1985, the "whole estate of the debtor" vests in the permanent trustee as at the date of sequestration and that the trustee may complete title by recording a notice of title, with the effect of an adjudication. A purchaser of heritable property acquires only a personal right until the disposition is recorded (infeftment/registration); accordingly an unrecorded disposition did not prevent the property from vesting in the trustee. The purchasers had not established an express trust or other interest excluded from vesting under section 33(1). The trustee's notice of title therefore prevailed in the race to the register.

This appeal concerned ownership of a flat sold by Mrs Burnett to Mr and Mrs Grainger who received and paid for a disposition but did not record it in the Register of Sasines. Mrs Burnett's estate was sequestrated and the permanent trustee recorded a notice of title before the Graingers recorded their disposition. The trustee sought declarators that the Graingers were not entitled to occupy the flat and that the property vested in him; warrant for summary ejection was also sought.

The procedural history was: decree for the trustee was granted by the sheriff; the sheriff principal allowed the Graingers' appeal and dismissed the action; an Extra Division of the Court of Session restored the sheriff's order in favour of the trustee; the Graingers appealed to the House of Lords.

The central issues were:

• whether the disponed but unrecorded disposition excluded the subject from vesting in the trustee under section 31(1) of the 1985 Act;
• whether the disponed-but-unrecorded right amounted to property "held on trust" within section 33(1); and
• the legal effect of failure to record (the "race to the register") and the relationship between real and personal rights under Scots conveyancing and bankruptcy law.

The House analysed long-standing Scots principles: a real (heritable) right in land requires infeftment/registration; until registration a buyer holds only a personal right (a "personal fee" or uncompleted title) which is ineffective against third parties who obtain an earlier real right by registration or adjudication. Section 31(1) was construed against this background: the act and warrant vests the debtor's whole estate in the permanent trustee and has the same effect as an adjudication, enabling the trustee to complete title and to obtain a real right by registration. The Lords held there was no express declaration of trust in the dispositive documents and Scots law does not recognise constructive or remedial trusts arising from completed contracts of sale; accordingly section 33(1) did not assist the purchasers. The trustee's recorded notice of title therefore prevailed in the race to the register. Some members of the panel expressed reservations about the fairness of the result and noted obiter points (including the possible relevance of section 33(1) and issues of unjust enrichment) which were not argumentatively pursued to the Court.

Appeal dismissed. The House held that section 31(1) of the Bankruptcy (Scotland) Act 1985 vests the whole estate of the debtor in the permanent trustee as at the date of sequestration, and that a disponee who has not completed title by recording the disposition holds only a personal right which does not prevent the trustee acquiring the heritable estate by recording a notice of title. There was no express trust in the disposition and section 33(1) did not exclude the property from vesting in the trustee.

Sheriff granted decree in favour of the trustee; Sheriff Principal allowed the appellants' appeal and dismissed the action; an Extra Division of the Court of Session (Lord Coulsfield, Lord Maclean and Lord Hamilton) allowed the respondent's appeal and restored the sheriff's order; the appellants' further appeal to the House of Lords was dismissed ([2004] UKHL 8).