Scotland | 01 July 2010

Those learning a language will be familiar with the problem: a word in the foreign language looks and sounds similar to a word in a person’s mother tongue but, it turns out, has a completely different meaning. They are false friends. Take the French ‘actuellement’, which actually means ‘at the moment’. As in language, so in law. When an English lawyer refers to a number of parties being ‘jointly’ liable to make payment, the presumption is that each is liable for the full amount (albeit that there is only one obligation, so performance by one will discharge the other). In Scots law, joint liability means that each party is presumed to be liable only for a proportion of the total amount due. [Continue Reading]

Scotland | 01 June 2010

Amid the coverage of the UK general election and its aftermath, the activities of the Scottish Parliament and Scottish government have dropped beneath the radar. Of course, this will only be a temporary absence, particularly since the Scottish media and political parties will soon have to switch their focus to next year’s Scottish Parliamentary elections. Before then, however, the Scottish government will aim to implement several policies that could have a significant impact on businesses. The need for companies to pay close attention to the terms and progress of these policies, each of which is at a different stage of implementation, is increased by the fact that they may be vulnerable to legal challenges.

Scottish Government proposals

Tobacco: restrictions on display and vending machines

The Tobacco and Primary Medical Services (Scotland) Act 2010 was passed by the Scottish Parliament earlier this year. Among other things (such as criminalising the purchase of tobacco by or on behalf of under-18s), it outlaws the display of tobacco products in shops and the sale of tobacco in vending machines. The Scottish government is currently consulting on draft regulations that will determine how the display ban will work, including allowing some limited display while stocktaking, cleaning or retrieving a product requested by a customer.

Alcohol: minimum pricing

The Alcohol Etc. (Scotland) Bill (the Alcohol Bill), which was introduced in the Scottish Parliament in November 2009, is designed to implement the Scottish government’s flagship policy of imposing a minimum price on alcohol products according to their alcoholic strength. Unfortunately for the minority Scottish National Party (SNP) government, Labour announced on the day the Alcohol Bill was introduced that it would not support minimum pricing. With the Conservatives and Liberal Democrats also opposing the concept, it seems unlikely that minimum pricing will be enacted. However, the Alcohol Bill continues to make its way through the first stage of the Scottish Parliament’s legislative process, which entails the Health and Sport Committee taking evidence on the legislation, before deciding whether to recommend its general principles to the whole Parliament.

Although minimum pricing may not become law, the Alcohol Bill also proposes numerous other changes that could still be enacted. These include outlawing multi-buy discounts (such as three-for-two offers) in off-licences and allowing local licensing boards to vary licensing conditions in their area. The government has said that the latter will be used to allow boards to raise the age limit for off-licence sales to 21.

High-calorie food and drinks: the Scottish government’s obesity strategy

In February 2010 the Scottish government published ‘Preventing Overweight and Obesity in Scotland: A Route Map Towards Healthy Weight’. The route map’s aims include:

  • reducing the ratio of high-calorie food and drinks to lower energy options stocked by supermarkets and convenience stores;
  • standardising portion sizes in ready meals and restaurants;
  • implementing Food Standards Agency (FSA) recommendations on food labelling in a consistent manner ‘to avoid consumer confusion’; and
  • targeting promotional activity, including product placement, price promotions and multi-buy offers ‘towards incentivising for a healthy weight’.

Although the strategy indicates that the Scottish government will seek to work with retailers and producers to achieve these goals, some of the proposals are backed by a clear threat of legislative action if voluntary approaches ‘do not achieve sufficient progress’.

problems

Each of these policies raises interesting questions of law about the extent to which the Scottish Parliament and government are entitled to get involved in these areas. Before discussing the particular issues relating to food, drink and tobacco, this article will provide a brief summary of the limits of the powers of the Scottish Parliament and government.

Scotland Act 1998

As all law students learn early on, the theory underpinning the unwritten British constitution is that the UK Parliament in Westminster can make any laws it wants. As a result, Acts of the UK Parliament can only be challenged in court in exceptional circumstances.

By contrast, Acts of the Scottish Parliament (ASPs) can be struck down by the courts. This is because the Scotland Act 1998 (the Scotland Act), which created the Scottish Parliament, contains rules on what it is able to do. The Scottish Parliament may not make laws that breach EU law or the European Convention on Human Rights (ECHR), or that relate to those areas of law that the Scotland Act says can only be dealt with by Westminster. These areas include a range of reserved topics, such as foreign affairs, social security and company law. An ASP that breaks any of these rules can therefore be challenged and invalidated.

The Scottish Parliament’s Presiding Officer considers the competence of all Scottish Parliamentary Bills prior to their introduction (Executive Bills are also considered by the Scottish government), and the Lord Advocate, Advocate General and Attorney General can challenge the competence of Bills in court before they receive Royal Assent. However, there is no guarantee that legislation is competent just because it has been passed. It is therefore open to individuals or companies affected by an ASP to challenge it in court themselves.

The limits on the Scottish Parliament also apply to the Scottish government, which has no power to do anything that the Scottish Parliament could not authorise it to do. This includes, for example, developing and implementing policies in reserved areas. Any Scottish government action that contravenes this limitation can also be challenged and struck down by the courts.

Are the Scottish Government’s proposals lawful?

Do the tobacco, alcohol and food policies relate to a reserved area?

One of the areas that the Scotland Act reserves to the UK Parliament is the ‘regulation of the sale and supply of goods and services to consumers’. The Scottish Parliament therefore has no power to make any laws relating to this issue and the Scottish government cannot introduce policies in this area. It is at least arguable that many of the Scottish government’s current proposals could qualify as relating to the regulation of the sale of goods to consumers, including:

  • outlawing the display of tobacco products;
  • prohibiting the sale of tobacco products in vending machines;
  • imposing a minimum price on alcohol products;
  • imposing other proposed restrictions on the sale of alcohol, such as the change to the minimum age limit and the outlawing of certain sales promotions;
  • regulating the stocking policies and promotional activity of supermarkets and convenience stores; and
  • standardising portion sizes in ready meals and restaurants.

Any of these tobacco and alcohol policies could be defined as regulating the sale of goods to consumers. Why, then, would the Scottish government and Presiding Officer both certify the policies relating to tobacco and alcohol policies as competent? The likely reason for this, and the potential difficulty for anyone challenging the policies as outwith competence, is that the question of whether an ASP ‘relates to’ a reserved area is not as straightforward as it might first appear.

Section 29(3) of the Scotland Act says that this question is to be determined:

‘… by reference to the purpose of the provision, having regard (among other things) to its effect in all the circumstances.’

In the Westminster debates on the Scotland Act, it was suggested in the House of Lords that the ‘pith and substance’ of the legislation is key, and so an Act would not be incompetent just because its provisions had an incidental effect on reserved matters. This ‘pith and substance’ test was borrowed from case law relating to the devolution of powers from Westminster to Commonwealth states, such as Canada and Australia.

The Scottish government would no doubt seek to defend a challenge to any of its proposals by arguing that they were motivated by health and public order concerns (the latter particularly in relation to restrictions on alcohol sales). However, while the motivation behind a measure might be relevant in establishing its purpose, the practical effect of the Scottish government’s proposals would nevertheless be to regulate the sale of goods to consumers. It would be difficult to claim that this effect was only ‘incidental’. The courts may therefore have grounds to decide that these proposals relate to a reserved matter and strike them down.

The Supreme Court recently considered the competence of Scottish legislation, including whether it strayed into reserved matters, in the conjoined cases of Martin & Miller v Her Majesty’s Advocate [2010]. Unfortunately, the decision is not entirely helpful in assessing the competence of the Scottish government’s food, drink and tobacco proposals. This is because the decision involved much more esoteric questions relating to criminal law and, in any event, resulted in the court divided three to two on the competence of the legislation, with the Scottish judges Lord Hope and Lord Rodger reaching sharply opposing conclusions.

However, there may be some light shed on the scope of the sale of goods reservation soon, as Imperial Tobacco has raised a judicial review challenging the tobacco display and vending machine bans. A ruling that this legislation was not competent would also have serious repercussions for the Scottish government’s food and drink policies.

Are the policies contrary to EU law or the ECHR?

Aspects of the Scottish government’s proposals may also be challengeable on the grounds that they would breach EU law if enacted. The argument would be that the restrictions imposed by the Scottish government constituted barriers to the free movement of goods, as prohibited by Article 34 of the (post-Lisbon) EU Treaty (the Treaty).

Arguably, the prohibition on displaying tobacco products could make it more difficult for foreign producers of cigarettes to launch a product in the Scottish market, as it may be difficult for them to compete with established brands if consumers cannot see new products.

Minimum pricing could also affect the free movement of goods within the EU by preventing cheaper foreign products (eg Bulgarian wine) from competing on price, and thus forcing them out of the market. Previous decisions of the European Court of Justice have struck down minimum pricing schemes (including in relation to tobacco) on the basis that they effectively negate the competitive advantages of imported products with lower cost bases.

If made compulsory, the proposals in the obesity strategy on standardised portion sizes and labelling requirements prioritising health messages could also constitute barriers to the free movement of goods. This is because foreign producers of food (and ready meals in particular) could only sell their goods in Scotland if they complied with the relevant size and labelling requirements. The FSA’s recent proposals on introducing ‘traffic-light’ labels in the UK have required extensive discussions with the European Commission on which EU labelling regulations apply and whether there must be notification to the Commission before labels can be introduced. This illustrates just how complex EU law in this area can be.

Measures restricting the free movement of goods can be permitted under the Treaty if they protect human life or health, but only if they are both necessary and proportionate. In other words, the burden would be on the Scottish government to show that the proposals would achieve their aim of improving health and that no alternative that would have less impact on the free movement of goods was available.

Interestingly, it would fall to the UK government to defend the Scottish government’s policies to the Commission if they were investigated at EU level, because the UK, and not Scotland, is the EU member state. The UK government might therefore have to argue that the policies were necessary to protect health, even if it had not introduced equivalent policies in the rest of the UK.

It is also conceivable that the Scottish government’s policies could affect the rights of retailers and producers under the ECHR, as commercial organisations are entitled to the protection of some of those rights. In particular, limiting the display, advertising or marketing of products, restricting how products can be priced and requiring shops to adopt particular stocking policies could all affect the property rights protected by Article 1 of Protocol 1 to the ECHR. The restrictions on product display and other marketing measures may also affect Article 10 rights to freedom of expression. If faced with such challenges, the Scottish government would again have to defend its policies on the grounds of necessity and proportionality.

Voluntary compliance with the Scottish government’s proposals

Any business asked by the Scottish government to follow aspects of its policies on a ‘voluntary’ basis should be aware that this may give rise to issues under competition law.

Although the Scotland Act reserves the regulation of anti-competitive practices and agreements to the UK Parliament, there is, technically, no barrier to the Scottish Parliament or Scottish government introducing laws or policies that are anti-competitive. Businesses will no doubt be aware of the kinds of co-operation between competitors (including through trade associations) that can breach the Competition Act 1998 (the Competition Act) and result in large fines. However, what may come as a surprise is that it is not a defence to a breach of competition law to say that the offending agreement was encouraged or facilitated by government, or that a government body was a party to it. It is only a defence to a breach of the Competition Act if a business was required to do something anti-competitive by law (ie by legislation or a court order).

This could be relevant to the Scottish government’s proposals that the food sector adopts particular policies on stock levels, portion sizes, labelling and marketing activity. Retailers and producers in this sector must therefore be wary of voluntarily agreeing to limit their scope to compete with each other in these areas. If minimum pricing of alcohol were to be enacted, it might also be a breach of competition law for producers or retailers to be involved in setting the minimum unit price.

Conclusion

By the time the 2011 Scottish Parliamentary elections take place, the SNP government will be hoping to have in place food, drink and tobacco policies that it can point to as signature achievements. However, even if they were all to be enacted by the current Parliament, they could still be derailed by a determined court challenge. Retailers, producers and other businesses should therefore give close consideration to their options if policies are introduced that would be detrimental to their interests.

Scotland | 01 May 2010

The popular consensus is that there will not be a return to pre-2008 levels of property transactions for at least a few years. It is also uncertain when, if ever, the property market will return to the boom times seen in the early part of the last decade. During this period, it was not uncommon to see tenanted buildings change hands with significant levels of capital appreciation for the sellers. Furthermore, the state of repair of the tenanted building was not often something that affected the sale price as property owners could claim that a tenant covenant would cover any repairs. However, during the recession the value of many landlords’ investments has plummeted, with the result that property owners are holding their stock pending an upturn.

In current economic conditions, should property owners and tenants change their approach to the management of their property interests? Broadly speaking, institutional leases will contain a full repairing obligation on the tenant. However, pre-recession experience suggests that interim enforcement of repairing obligations is not often high on a landlord’s agenda. Similarly, some tenants carry out minimal works during the currency of the lease and are therefore likely to fail in complying with their repairing obligations. Cash settlements are not unusual when leases come to an end. In effect, repairing obligations are often disregarded pending lease termination, when the landlord suddenly takes notice of the spectre of an empty dilapidated building looming on the horizon.

Why should landlords and tenants consider a strategy to enforce or comply with the repairing obligations during the currency of the lease? Every case will depend on its own facts and circumstances, as well as the extent of the repairing obligations in the lease, but there are several reasons for implementing such a strategy. These are as follows.

Cost of works

The cost of carrying out works in a recession is likely to be very competitive. Contractors have been hit hard by the recession and those that have survived are competing for work with what are, comparatively speaking, keenly priced tenders. Therefore, building and repair works can generally be done at a lower cost than in previous years. So it is possible that tenants could mitigate their liability by organising works during the lease term at a much lower cost than the landlord’s estimate of works at lease expiry. Of course, tenants will also have to bear in mind that carrying out works to the premises will not be risk-free and there is no guarantee that the landlord will agree that the works have been done to the requisite standard.

Break notices

Tenants are looking for the best deal more than ever, which switched-on property managers will know means they will serve break notices and notices to quit when given the chance. Landlords are therefore facing the prospect of empty properties that will be less attractive to potential tenants in their dilapidated state and should seek legal advice to prepare themselves for this possibility.

Tenants should be aware that break clauses sometimes stipulate that a break can only be exercised if there has been material compliance with all the obligations incumbent on them. If a break clause is worded in a sufficiently precise manner (see the comments of the Inner House of the Court of Session in Trygort (Number 2) Ltd v UK Home Finance Ltd & anor [2008]), a tenant could find themselves in a position where, in the absence of the works being done to keep the premises up to the standard required by the lease, the landlord could view the break as invalid. Litigation could then ensue as the parties argue over whether or not the break has been properly exercised.

Cost of repairs

Landlords should pay close attention to what the lease sets out in relation to repairs to both the premises and common parts. Some leases will make it clear that the landlord can only recover sums expended on work to the common parts if the work has been done and paid for during the currency of the lease. However, some leases will make it clear that if a landlord has incurred liability for repair to the common parts (by entering into a contract for the works, for example), costs can still be recovered from the tenant, albeit after termination.

If a tenant has complied with their repairing obligations, they are less likely to face a loss of rent claim from the landlord. Where a tenant has not complied with these obligations and the landlord is faced with a void following lease expiry, the landlord can claim for loss of rent for a reasonable period, given that they will be faced with repairing the premises. It is also worthwhile checking whether there are any liquidate and ascertained damages clauses in the lease to deal with loss of rent, as these can prescribe the sums due by the tenant. It is likely that these clauses will be held as enforceable against the tenant. The Scottish courts have held that a liquidate and ascertained damages clause will almost inevitably be upheld, even if the actual loss has proved to be much less or even non-existent. (See the decision of the Inner House of the Court of Session in City Inn Ltd v Shepherd Construction Ltd [2003].)

Specific implement

A clear dilapidations strategy will be more effective if the landlord begins enforcement action well in advance of the expiry of the lease. In Scotland, landlords have a powerful court remedy in their armoury called specific implement. A specific implement action allows landlords to force the tenant to comply with their repairing obligations during the currency of the lease. Once the lease comes to an end, and unless the parties have contracted to the contrary, the landlord’s primary remedy will be damages. Landlords should be aware of the identity and covenant of the relevant tenant. It is possible to envisage circumstances in which a damages claim could become more difficult, such as where the outgoing tenant is a foreign company retrenching its overseas operations.

Comment

While this article aims to give landlords and tenants some food for thought, there may be compelling reasons for either party not to consider carrying out works to comply with repairing obligations during the currency of a lease. In these situations, there is always the possibility of a cash settlement. However, where such a settlement is being considered, landlords and tenants should remember that there are other issues that can defeat or drastically reduce any potential claims for damages. While it is difficult to generalise, landlords and tenants should think carefully before they rule out action to comply with or enforce repairing obligations during the currency of a lease.

Scotland | 01 April 2010

The Arbitration (Scotland) Act 2010 (the 2010 Act) was passed by the Scottish parliament on 18 November 2009 and will come into effect later this year (the latest estimates are for June 2010). What changes does it introduce and what impact will it have on dispute resolution in Scotland? [Continue Reading]

Scotland | 01 March 2010

This article reviews the health and safety regulatory regime in Scotland, which has been transformed over the past year. It tracks the development of the dedicated Health and Safety Division, the move towards the pursuit of individuals for health and safety offences, and what this means for organisations and senior staff in Scotland. [Continue Reading]