The In-House Lawyer

Governments and Parliaments are regularly responsible for adding to the workload of the legal profession, including, of course, that of in-house lawyers. Complaints about the sheer volume of new law to be considered, understood and advised on are commonplace – as are complaints from clients about the burdens imposed by new regulations. The picture has been complicated further in the UK as the result of devolution and the creation of the Scottish Parliament and Welsh and Northern Ireland Assemblies: new (or now not-so-new) bodies with their own powers and political agendas.


With these new powers has come a new set of issues for in-house and external legal advisers, most often (at least so far as Scotland is concerned) arriving on desks with the question: ‘Can the Scottish Parliament do that?’ Recently, the ‘that’ in question has proved sufficiently vexing to parts of the commercial sector concerned with insurance liabilities and tobacco regulation to persuade them to raise legal challenges to Acts of the Scottish Parliament. Those cases are, of course, immensely important for the sectors concerned. Moreover, they are the first attempts by major business interests to have the courts examine the limits of the Scottish Parliament’s powers. While those challenges have achieved limited success to date, it seems inevitable that strategic litigation of this sort in Scotland is here to stay.


The Scottish Parliament has very wide lawmaking powers. Its remit extends across the range of domestic policy issues from education and health to local government and transport, crime, and the environment. That remit is not, however, unlimited. The Scotland Act 1998 (the 1998 Act), which created the Parliament, placed several restrictions on its ‘legislative competence’. These include prohibitions on the Parliament making laws that are in breach of EU law or which contravene the European Convention on Human Rights (ECHR) – limits that are easy to express, but which may prove complex to apply in practice. 


Equally complex, as it has turned out, are the limits that describe the division of responsibility between the Scottish Parliament and the UK Parliament at Westminster. The 1998 Act contains a long list of ‘reserved matters’. Those are the areas of law that it has been decided (by the UK Parliament) are best dealt with at a UK level and about which the Holyrood Parliament is not able to pass legislation. Some of those areas are obvious (national security and defence, and macroeconomic policy), while others are less so (‘outer space’ being one of the more whimsical reservations). As we will see, however, the reservations are not always expressed in clear terms and it can be difficult to work out on which side of the line – permitted or forbidden – an act of the Scottish Parliament falls.


There is not anything terribly surprising about the fact that there are ‘boundary disputes’. Indeed it was accepted – and expected – at the time the Scottish Parliament was created that such disputes would arise. Westminster put numerous mechanisms in place through which the legal validity of an Act of the Scottish Parliament could be tested. Those mechanisms include several stages of pre-legislative scrutiny and the possibility of a Bill being referred to the Supreme Court for a ruling on its ‘competence’ before it is passed to the Queen for Royal Assent. After passing into law an Act can nevertheless be struck down by the courts as invalid, but only after the Scottish and UK governments have been given the opportunity to become involved in the court process.


Over the past decade there have been numerous challenges to Acts of the Scottish Parliament. One of the most highly publicised early cases was the unsuccessful attempt to strike down the Scottish Parliament’s ban on fox hunting. Others have focused on criminal justice, mental health and human rights. This year, however, has marked something of a departure from that earlier pattern, with two challenges brought by major commercial litigants to legislation that will have a significant effect on their businesses.


Damages (Asbestos-related Conditions) (Scotland) Act 2009 (the 2009 Act)


The 2009 Act was passed by the Scottish Parliament following a decision of the House of Lords in an English damages action in 2007. The Lords had determined that a condition of the lungs (known as pleural plaques), which resulted from exposure to asbestos, but which itself did not have adverse health impacts, was not a condition for which compensation should be payable. The Scottish Parliament, almost unanimously, took the view that compensation ought to be available to those who had acquired pleural plaques as the result of having been negligently exposed to asbestos. The 2009 Act was intended to achieve that aim and includes retrospective provisions, with a view to enabling claims to be made by individuals whose exposure to asbestos may have occurred several decades earlier.


The 2009 Act has been challenged by four major insurers who will incur significant liability (tens if not hundreds of millions of pounds) for damages claims for pleural plaques under employers’ liability policies if the Act continues in effect. The insurers have relied on several grounds of challenge. The first is that the 2009 Act breaches their rights under the ECHR. It still comes as a surprise to some that commercial operations are protected by numerous rights contained in the ECHR, but those protections include Article 6 of the ECHR (right to a fair trial) and Article 1 of Protocol 1 (peaceful enjoyment of possessions). The insurers relied on both at the outset of the case but have now restricted their human rights arguments to Article 1 of Protocol 1. The essence of their case is that the 2009 Act represents an interference with the insurers’ possessions (their capital resources). The interference will only be lawful if it serves a ‘compelling public interest’ and if it is ‘proportionate’. The last requirement involves a balancing exercise between the private rights of the insurers and the public interest said to be served by the 2009 Act.


To the dispute about the ECHR, the insurers added a further ground of challenge and it is one that has set the cat among the constitutional lawyers who have been following the case. In addition to the restrictions on the Scottish Parliament’s powers that are set out in the 1998 Act, it has been argued that Parliament can also be subject to challenge on the same sorts of grounds that could be used in a judicial review of the actions of any other public body, for example a local authority. The insurers contend that the 2009 Act is ‘Wednesbury unreasonable’ or irrational and should also be struck down on that basis.


A lengthy hearing at first instance took place over the summer and early autumn of 2009. Lord Emslie issued his decision in January 2010 (see AXA General Insurance Ltd & ors, Petitioners [2010]), in which he dismissed the insurers’ action. While Lord Emslie found that they did have standing to bring their challenge, they had failed to make out a compelling case for breach of either Article 6 or Article 1 of Protocol 1. He also found, however, that it was open to the court (even if only in extreme circumstances) to strike down an Act of the Scottish Parliament on the grounds that it was ‘irrational’.


This latter finding caused some consternation. In the appeal to the Inner House of the Court of Session, which took place in July of this year (and in relation to which a judgment is awaited), the question of the status of Acts of the Scottish Parliament – whether in legal terms equivalent to those of the sovereign Parliament at Westminster or more like statutory instruments or local authority bylaws – was debated at length. Both the UK government and the Welsh Assembly government were given permission to become involved in the case to argue the point – the former agreeing with Lord Emslie that judicial review on ‘common law’ grounds must be competent and the latter siding with their devolved cousins. 


Undoubtedly, AXA will be the subject of many an academic thesis. However, leaving aside the ramifications for constitutional lawyers, the challenge represents an attempt by the insurers to establish that, in passing the 2009 Act, the Scottish Parliament went beyond its mandated powers in a way that will have a very significant economic effect on their business. The question is one of the legality of the legislation itself: a question that up until recently was fairly unlikely to land on the average lawyer’s desk.


Tobacco and Primary Medical Services (Scotland) Act 2010 (the 2010 Act)


On the face of it, the second recent challenge (Imperial Tobacco Ltd, Re Judicial Review [2010]) ought to be more straightforward for the lawyers and courts alike. Imperial Tobacco judicially reviewed the 2010 Act on the grounds that it was beyond the legislative competence of the Scottish Parliament to impose bans on the display of tobacco products and the use of cigarette vending machines. The question: were such bans ‘reserved’ to Westminster, making it a matter for London, rather than Edinburgh, whether they should be imposed?


The reservation that was relied on by Imperial provides that the ‘regulation of the sale and supply of goods and services to consumers’ is a matter solely for Westminster. Arguably, on a plain reading of the reservation, it is fairly obvious that a ban on the display of tobacco products and a ban on the use of machines from which cigarettes can be sold are both measures that ‘regulate’ the sale and supply of goods to individual consumers. However, such a plain reading was not appropriate, not least because of some other rather complex parts of the 1998 Act, which aim to assist the courts in interpreting the scope and meaning of reserved matters.


One such provision makes clear that, in deciding whether or not an act of the Scottish Parliament, or part of it, ‘relates’ to reserved matters, it is necessary to consider the purpose of the act ‘having regard (among other things) to its effect in all the circumstances’. Colloquially, what the test requires is the court to have regard to the ‘pith and substance’ of the act. More colloquially still, what is the act truly about? Lord Bracadale QC, in examining that question, was very much influenced by statements contained in government publications, including consultation documents, and made by the relevant minister during the Bill’s passage in the Scottish Parliament. It was accepted that the true purpose of the 2010 Act was the improvement of health, and not the regulation, of the sale and supply of goods and services. 


Other parts of the challenge related to the more obscure sections of the 1998 Act. One such section prohibits Parliament from legislating about an area of law that is, of itself, not ‘reserved’, but where such legislation nevertheless modifies Scots criminal law ‘as it applies to’ reserved matters. The meaning of this prohibition was examined earlier in the year by the Supreme Court in Martin v Her Majesty’s Advocate [2010] (a case about penalties for road traffic offences). Martin did not, however, result in either consensus (their Lordships seriously at odds with one another’s approach) or in a great deal of clarity. Here, Lord Bracadale concluded that, although the 2010 Act created new criminal offences, it could not be said to have made any more general modifications of Scots criminal law as that ‘applied to’ reserved matters.


It remains to be seen whether this challenge will be pursued further, although early reports suggest Imperial will appeal. Certainly, the more complex interpretative provisions in the 1998 Act are worthy of further analysis by the courts and, if successful, the Imperial challenge could pave the way for the examination of other legislative proposals.


How, What and Wherefore


The actual mechanics of a legislative challenge are no less interesting (using that word advisedly) than the legal arguments themselves. Acknowledging the wider importance of a challenge to an Act of the Scottish Parliament than its mere significance to the parties themselves, the 1998 Act contains rules to ensure that all of those with a legitimate interest in the proceedings are made aware of their existence. In particular, any such action must be served on the Lord Advocate (who defends legislative challenges ‘in the public interest’ rather than, strictly speaking, on behalf of the political administration which promoted a Bill) and on the Advocate General (the UK government’s law officer in Scotland). 


There are ways in which a challenge – which need not be raised solely by judicial review, but which could be made as part of a defence to, say, a relatively minor criminal prosecution in the lowest courts – can be fast-tracked so as to be dealt with by the higher courts without the need for appeal hearings at every level.


One of the most interesting developments, the competence of which is still under debate, has been the intervention in AXA of several individuals who are likely to benefit from compensation payments if the 2009 Act is held to be valid. Those individuals were allowed to intervene, not in the ‘public interest’ but as respondents in their own right, with an entitlement to a hearing and access to rights of appeal equivalent to those of the Lord Advocate and the Advocate General.


Future Challenges


In the commercial field, there are several other areas of policy that are of interest to the Scottish Parliament and Scottish government, which, if taken forward, might be the subject of a legal challenge. There has been much discussion, for example, about proposals to introduce a regime of minimum pricing for alcohol products. Questions have been raised about whether such legislation would also infringe the reservation that relates to the regulation of the sale and supply of goods and services (the answer to which may have been pointed to by Lord Bracadale in Imperial Tobacco when deciding that the reservation does concern the ‘terms’ on which goods are sold), and whether, separately, they might breach EU law by being anti-competitive. The Scottish government’s nascent obesity strategy, should it involve attempts to regulate the sale of ‘unhealthy’ food and drink, would give rise to similar considerations.


One final point of note is that the prospect of a challenge under the 1998 Act is not limited to review of primary legislation. As a general principle, the Scottish government’s powers to make secondary legislation and to implement policy without legislating at all are constrained in just the same way as the Parliament’s, with the ‘devolved competence’ of the government mirroring Parliament’s legislative competence. The importance of powers to make statutory instruments and to govern by administrative decision-making has increased since the last election, given the difficulties that the minority Scottish National Party government has in passing legislation in the chamber. Those powers are, however, equally susceptible to control by the courts.


Brodies LLP acts for AXA, Aviva, RSA and Zurich in their challenge to the 2009 Act; advises Gallaher Ltd on tobacco regulation in Scotland; and advises the Scotch Whisky Association on minimum pricing proposals.


By Christine O’Neill, head of public law, Brodies LLP. 


E-mail: christine.oneill@brodies.com.