Legal Briefing

Ten notable Scottish cases of 2013

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Public Sector | 01 February 2014

We have considered ten notable Scottish cases decided in the civil courts in 2013. These include a ruling on the novel question of whether a liquidator can abandon heritable property in Scotland; a case confirming the law of rectification of contract; a Supreme Court ruling that an Act of the Scottish parliament was outwith its legislative competency; and important procedural decisions. The common theme is that these cases highlight the differences between Scots and English law, and the importance of obtaining specialist advice on Scottish legal matters.


INSOLVENCY

Note for Directions by the Joint Liquidators of the Scottish Coal Company Ltd [2013]

The liquidators of Scottish Coal sought directions from the Court of Session as to whether they could abandon the company’s sites and environmental licences, as otherwise the costs of complying with environmental liabilities would leave no return to the company’s creditors, some of whom were secured. The Inner House unanimously overturned the earlier decision of Lord Hodge by holding that the liquidators did not have the power to do this.

In England liquidators have a statutory power to disclaim onerous property, under s178 of the Insolvency Act 1986. As there is no equivalent provision in Scotland the question for the Court was whether it was possible generally for land to be abandoned. The Court held that ownership of land could only be terminated through operation of law (ie compulsory purchase), or by voluntary transfer. It was not possible to cast away a real right in land for it to become ownerless. Therefore without a specific power the liquidators could not abandon the sites.

Consequently, the liquidators could only abandon the environmental licences if to do so was permitted by the licences. The Court found that they could not do this, holding that the specific surrender process in the environmental Regulations was the only way to terminate environmental obligations. This interpretation was in accordance with the ordinary meaning of the Regulations and the purpose of the European directive they are derived from. This did not mean that the Regulations were outwith the Scottish parliament’s legislative competence, as their purpose was ‘an environmental one’ (which is devolved), regardless of the effect on the practicalities of insolvency (which is not).

BANKING: COLLATERAL WARRANTY

Royal Bank of Scotland plc v William Derek Carlyle [2013]

Mr Carlyle, who was a property developer, entered into loan agreements with Royal Bank of Scotland (RBS) for the purchase of a plot of land. When RBS raised an action for repayment, Mr Carlyle counterclaimed for £1.5m, arguing that he had only entered into these agreements because the bank had provided a ‘collateral warranty’ that future lending would be made available for development of the land. When this funding was not forthcoming he claimed that RBS was in breach of contract.

Mr Carlyle submitted that the bank’s obligation arose when an employee told him ‘it’s all approved’ during a telephone discussion. At first instance Lord Glennie held that this was a collateral warranty.

The Inner House reversed this decision. It confirmed that, by looking at the phrase ‘it’s all approved’ objectively and in context, this amounted only to advising Mr Carlyle of an internal decision approving in principle the proposal to lend funding for the development. A binding legal obligation could not have been formed merely from this discussion as no reference was made to any necessary elements which needed to be agreed before drawdown. An informed observer would expect all obligations to be set out in the written agreements between the parties, and would be aware, as indeed would an experienced businessman like Mr Carlyle, that no drawdown would be permitted until a written contract was agreed.

CONTRACT: INTERPRETATION, RECTIFICATION AND BREACH

Lloyds TSB Foundation for Scotland v Lloyds Banking Group plc [2013]

The Inner House decision, which we discussed in 2012, was reversed by the Supreme Court last year.

The Foundation and Lloyds were parties to a deed of covenant from 1994, under which Lloyds was required to pay the Foundation a percentage of its profit. A European Regulation, which compelled Lloyds to recognise negative goodwill in its accounts, subsequently came into force. Therefore, when Lloyds acquired HBOS, the resulting negative goodwill significantly increased its profit figure. The Foundation argued that, interpreting the deed literally, this should be included in the amount due to it, and the Inner House agreed.

In contrast, the Supreme Court held that the proper approach was to interpret the parties’ original intentions in a contextual and purposive manner, and then evaluate how the wording of the deed best operated in circumstances described by experts as unforeseen, unforeseeable and unthinkable. It would have been contrary to both law and accounting practice to have taken account of unrealised profits in 1994, so this change was completely outside the parties’ original contemplation. Accordingly, the wording of the deed operated best, and naturally, by excluding this amount, and this gave effect to the parties’ original intentions.

Patersons of Greenoakhill Ltd v Biffa Waste Services Ltd [2013]

The parties entered into an agreement for Biffa to supply a minimum amount of waste annually to Patersons’ landfill site. When Biffa failed to do so, this triggered a clause which required payment to be made to Patersons. The parties disputed the meaning of this clause, with Biffa arguing that payment was only due the year of the breach, whereas Patersons maintained that payment was to be made that year and every subsequent year.

Lord Hodge in the Outer House agreed with Patersons’ interpretation, which was not unreasonable or contrary to business common sense, and was in accordance with the ordinary and natural meaning of the clause.

However, Biffa had counterclaimed for rectification if Patersons’ construction was to be preferred, on the basis that the clause did not express the parties’ common intention. Lord Hodge summarised the requirements for rectification. Crucially, there must be an existing agreement between the parties showing their continuing common intention. Although a party’s subjective understanding was not relevant if not communicated, its conduct post-contract might be. Its solicitors’ communications and conduct would also be examined. Importantly, the quality of evidence needed was not substantially different from evidence required in England. A ‘stiff hurdle’ must be overcome in both jurisdictions.

Lord Hodge ultimately allowed rectification, finding that objective evidence about the parties’ negotiations and their subsequent conduct amounted to a ‘cogent case’ that a mistake had occurred.

AMA (New Town) Ltd v Law & ors [2013]

AMA entered into missives with the respondents for the sale of flats. The missives provided that entry and vacant possession were to be given, and the keys released, only on payment of the full price on the date of entry. The respondents failed to pay and AMA sued for payment. The respondents’ defence was that the contracts were incomplete, so the appropriate remedy was rescission and damages. The Sheriff would have found in favour of AMA but was bound by a previous decision of the Sheriff Principal.

The Inner House allowed AMA’s appeal. It held that the contracts were complete, as payment was triggered by the date of entry alone and did not require prior delivery of the disposition, irrespective of practice.

Therefore, AMA could either accept the respondents’ repudiation and claim damages, or refuse to do so and seek to implement the contract. AMA had chosen the latter, which it was entitled to do, being the innocent party, even if this was not usual practice. It could only be compelled to resort to the former remedy if implement was impossible or, in exceptional circumstances, where the burden of implement would be disproportionate and ‘so unreasonable as to be manifestly unjust’. This was not so here, as the only burden was to pay the price per the contract.

PUBLIC LAW: DEVOLVED COMPETENCE

Salvesen v Riddell & anor [2013]

Mr Salvesen owned a farm leased to a limited partnership, of which the Riddells were the general partners. His nominee, the limited partner, gave notice on 3 February 2003 that the limited partnership would be dissolved on 28 November 2008. The lease would also end then. However, the Riddells subsequently gave notice under s72 of the Agricultural Holdings (Scotland) Act 2003 of their intent to become joint tenants of the farm, thus avoiding dissolution of the partnership and preserving their tenancy.

Mr Salvesen applied to the Land Court for an order so that he could have vacant possession, which was refused. If the 2003 notice had been given on or after 1 July 2003 then Mr Riddell would have had a remedy, per s72(10).

The Inner House held, as discussed in 2012, that s72 was in violation of Mr Salvesen’s right to peaceful enjoyment of property under Article 1 of Protocol 1 to the European Convention on Human Rights (ECHR). This provision was therefore outwith the competence of the Scottish parliament and void.

The Supreme Court agreed. As landlords who served dissolution notices on or after 1 July 2003 were in a better position, s72(10) was arbitrary, unfair and disproportionate. It could not be read in a way that was compatible with the ECHR. It was also discriminatory.

The effect of the judgment has been suspended to allow the Scottish Parliament to amend the Act.

Petition of the Scotch Whisky Association & ors for Judicial Review of the Alcohol (Minimum Pricing) (Scotland) Act 2012 [2013]

The Scotch Whisky Association (SWA) challenged the legality of this legislation and a draft order to introduce a minimum price of 50p per unit of alcohol. This was brought by way of judicial review before Lord Doherty on the basis that the legislation is contrary to EU law and accordingly outwith the legislative competence of the Scottish parliament.

The SWA’s main argument was that the measure is akin to a quantitative restriction on imports from other EU countries, and as such prohibited by Article 34 of the Treaty on the Functioning of the European Union (TFEU). Lord Doherty held that the measure was justified under Article 36 of the TFEU as being necessary for the protection of public health. He found that the measure had a legitimate aim, which was the reduction of alcohol consumption; that the measure was appropriate to meet this aim; and that proposed alternatives would not be as effective.

Separately, Lord Doherty also decided that the measure did not restrict or seek to restrict freedom of trade or give preference in trading conditions, and as such did not breach the Acts of Union between England and Scotland. He found that there must be free access to markets, but that trading conditions in both jurisdictions need not be identical.

The decision is being appealed to the Inner House, with a hearing expected in early 2014.

PROCEDURE: INTEREST RATE PRESCRIPTION AND LEAVE TO APPEAL

Farstad Supply AS v Enviroco Ltd [2013]

The first instance decision of Lord Hodge in this case, which concerns the rate of interest applied to awards of damages, was discussed in our 2011 article. The parties had settled a damages action and had jointly asked the court to decide the appropriate rate of interest to apply.

The judicial rate of interest in Scotland from the date of decree has been set at 8% since 1993. Assessment of pre-decree interest is a matter of judicial discretion, but the ordinary practice has been to award this at the post-decree rate of 8%. However, Lord Hodge took note of the rapid fall in base rate following the start of the financial crisis and differentiated between the periods before and after 4 December 2008. He therefore applied interest at 8% before and a variance of 4% thereafter.

Enviroco argued that the Court should adopt a novel approach to reflect current market rates. It suggested 1% above the base rate, the practice of the admiralty and commercial courts in the High Court in England and Wales. Farstad cross-appealed for the rate to be raised to 8% for the entire period.

The Inner House upheld Lord Hodge’s decision. The Court was reluctant to depart from established practice but stated that the mismatch between the judicial rate and current interest rates was ‘a matter of concern’ and moved the Rules Council to consider this urgently.

David T Morrison & Co Ltd v ICL Plastics Ltd & ors [2013]

This was one of many cases to arise out of the tragic May 2004 Stockline factory explosion in Glasgow, in which nine workers died. The pursuers sued in respect of the damage caused to their shop by the explosion, which occurred as a result of a cracked underground pipe which leaked liquefied petroleum gas into the factory’s basement.

In Scotland, under the Prescription and Limitation (Scotland) Act 1973, a party has five years (rather than the six years afforded in England) within which to bring an action for reparation. The prescriptive period begins when the loss occurs or when the party becomes aware, or could with reasonable diligence have become aware, of the loss.

The pursuers raised the action in August 2009. ICL argued that its obligation to make reparation had prescribed, as the pursuers did not need confirmation that the explosion had been caused by negligence and instead should have brought the action based on the principle of res ipsa loquitur (the event ‘speaks for itself’). The Inner House disagreed. This was merely an ‘evidential rule’ to enable justice to be done when the event appears to be attributable to negligence but the pursuer cannot ascertain the cause of the loss. The prescriptive period will not start if this is unknown to the pursuer, because the Act requires awareness of both the loss and that it is caused by negligence.

Uprichard v Scottish Ministers & anor [2013]

Penny Uprichard challenged the adequacy of the reasons given by the Scottish Ministers for their decision to approve plans for development in St Andrews. She had objected to this on the basis that this would cause irreversible damage to the town’s landscape.

The Supreme Court unanimously dismissed her appeal from the Court of Session, where both Lord Justice Clerk Gill in the Outer House and the Inner House had also found in favour of the Scottish Ministers. The Court held that to expect the Scottish Ministers to address ‘every nuance of every matter raised in every objection’ would be unreasonable.

Most significantly, Lord Reed was heavily critical of the appeal, as it did not raise any arguable point of law of general public importance and accordingly was not an appropriate use of the Court’s time. Appeals from the Inner House do not currently need leave to come before the Supreme Court, unlike appeals from other UK courts. All that is required is certification by two counsel that the appeal is reasonable. Lord Reed warned against Scottish litigants abusing this privilege.

In light of this case and other judicial comment, the Scottish Government has consulted on the current procedure, with the majority of respondents agreeing that this should be replaced by leave to appeal.

By Robin Macpherson, partner, and Monica Ross, solicitor, Brodies LLP.

E-mail: monica.ross@brodies.comrobin.macpherson@brodies.com.