A lack of diligence

Litigators are slowly coming to terms with the fall-out from Karl Construction Ltd v Palisade Properties plc SLT 2002 312. Lord Drummond Young’s four step test is now becoming a mantra throughout Scotland, both in Sheriff Courts and the Court of Session.  

But for what is a critical protective remedy there are now many uncertainties surrounding the inhibition process.  Here are three to ponder.

1.  The granting of letters of inhibition

In Karl Construction, Lord Drummond Young’s guidance could not be more clearly stated:

• “For the reasons discussed previously, I am of opinion that inhibition on the dependence will not be automatically available, even in cases where it seems possible to draw a clear inference of practical insolvency; the motion for inhibition would still have to go before a judge, who would require to be satisfied that the pursuer had a prima facie case and that there was a specific justification for inhibition on the dependence”. (paragraph 66).

Whilst there has been comment on this pronouncement (see Inhibitions on the Dependence: An Alternative View, David Logan and Scott Blair in Issue 14 of the SLT 2002 at 119) it has not been judicially challenged.  Indeed, practice in both the Court of Session and the Sheriff Court has been modified quickly.  Why then is it the case that in the Court of Session the Deputy Principal Clerk or those to whom she has delegated authority continue to automatically grant warrants on letters of inhibition in accordance with the procedure laid down in RCS 59.1?  

Section 6(3)(a) of the Human Rights Act 1998 states that a Court is a “public authority” for the purposes of Section 6 and section 6(1) states that it is unlawful for a public authority to act in a way which is incompatible with a convention right.  Inhibition on the dependence is a protective remedy granted by the Court of Session, by automatically signing and dating the warrant on an application for letters of inhibition on the dependence, the Court would appear to be committing an unlawful act.  How is this unlawful act remedied? It appears that when there is a petition for recall of inhibition based upon such an unlawful act the Court has little option but to grant recall.  Whilst the inhibited defender receives a remedy, the  pursuer who made an application for letters of inhibition and who is granted a warrant finds that the supposed security in the protective attachment has as much substance as candyfloss.

2.  Pursuer’s compensation for the unlawful act?

So, in response to an unlawful act committed by the court the inhibition is withdrawn and the defender has a remedy. But what about the pursuer?  Gone is the protective attachment that was apparently put in place by judicial authority.

Does the pursuer have any recourse or remedy?  In Wood v The Lord Advocate 1996 SCLR 278 a Sheriff Clerk who failed to act on a duly lodged Caveat was held to be discharging a responsibility in connection with the execution of a judicial process.  In terms of the Crown Proceedings Act 1947 section 2(5) no proceedings lay against the Crown in respect of his failure to act on the caveat.  

It is now less clear whether the courts, as “public authorities”, can confidently rely upon this legislation in light of the Human Rights Act.  Section 9 of the Human Rights Act makes special provision for proceedings against a “public authority” on the ground of an alleged unlawful act under section 6(1) where the proceedings are in respect of a “judicial act”.  “Judicial act” seems widely enough defined to include acts of those who are charged with administrative responsibilities.  However, the proceedings which may be brought in terms of section 9 are limited to a right of appeal against a decision or a petition for judicial review.  

Section 9(3) further limits any claim for damages by stating that no award may be made in respect of any judicial act done in good faith (except for compensation to the extent required by Article 5(5) of the Convention).

The issue becomes more intriguing when a judicial act has been done in bad faith.  In that situation section 9(3) does not appear to be a bar to bringing proceedings for damages.  Whilst it may have been intended by section 9 to preserve judicial immunity, if the point is ever challenged on the basis that an act has been done in bad faith it may be that an award of compensation against a court does arise. So, in light of Karl Construction could it be that the granting of warrants on letters of inhibition is being done in bad faith?

3.  Compensation for wrongful diligence

The other time bomb ticking quietly in the Karl Construction case is the reference to a need for compensation if the remedy turns out not to be objectively justified.  At paragraph 58 of his judgment Lord Drummond Young states:

• “(E)ven with the foregoing safeguards, it may frequently turn out that protective attachment is not objectively justified.  In such a case there is a real risk of significant detriment to the defender.  In my opinion, if protective attachment is recognised as a remedy only available if special circumstances are shown, but the remedy turns out not to be objectively justified, the defender should be entitled to compensation if he suffers loss and consequence”.

Compensation will probably be sought from the pursuer.  Will the test for this be as difficult to meet as that for wrongful interdict?  Taking it one step further, if “bad faith” can be established could we face a situation whereby compensation is sought from the court itself?  Somehow, I think not.

WHAT PRACTITIONERS SHOULD DO

It may be that there needs to be a rule change to prevent applications for letters of inhibition being warranted automatically and therefore unlawfully.

Until that happens litigators ought to protect themselves by instituting a procedure which prevents letters being applied for without the matter being put before a judge.

When advising on diligence, be conscious that your client may now be exposed to the risk of a damages claim if it turns out that the inhibition was not objectively justified.