You know who I mean

The Inner House recently gave judgment in the case of Prosper Properties and Inkersall Investments Ltd v The Scottish Ministers [2013] CSIH 54 (18 June 2013), a case which provides valuable guidance on the law of arrestment in Scotland.

What happened?

The pursuers, two related companies, were owed money by a debtor for lost rental income and damage sustained to their land. They raised an action in the Court of Session to recover these losses. At the same time they sought and were granted a warrant to arrest on the dependence. Warrant had been sought as it was believed that the debtor was entitled to a payment by the Scottish ministers under the Single Farm Payment Scheme (“SFPS”). This scheme was, at the time, administered on behalf of the Scottish ministers by the Scottish Executive Environment and Rural Affairs Department, “SEERAD”. Two arrestments were served on SEERAD in 2006. An arrestment allows a creditor to “freeze” a debtor’s moveable property, such as money, in the hands of a third party in possession of the property.

Some months after the arrestments were served, solicitors acting for the defenders wrote to the sheriff officers who had served the arrestments advising that they were invalid. The debtor was subsequently sequestrated and decree by default in the principal action was granted. The pursuers then sought release of the arrested sums. The Scottish ministers denied that any sums were due, because they had been paid out to the debtor some years previously. The pursuers raised an action in the Court of Session for damages for breach of arrestment.

What were the issues?

The Scottish ministers claimed that they were not liable to pay any sums to the pursuers. They put forward four arguments, each of which was rejected by the Lord Ordinary:

(1) it was incompetent for the pursuers to combine their claims for payment in one action (thus invalidating any arrestments served in connection with it);

(2) the arrestments should have been served on the Scottish ministers, not SEERAD;

(3) there was no arrestable obligation on the date of service of the arrestments; and

(4) the pursuers had not properly averred that they suffered loss, as another creditor might have had a better claim.

The opinion of the Inner House

(1) The competency of a single action

It is a well known principle that different parties cannot combine their actions in one libel, unless they have a connection with one another in the matters pursued, or have been aggrieved by the same act (HM Feuars of Orkney v Steuart (1741) Mor 11986). The Inner House held, agreeing with the Lord Ordinary (Lord Woolman), that there were enough similarities of interest between the pursuers to justify the conclusion that the action fell within the first exception to the general rule. The two companies were sufficiently linked (both had the same principal, the companies were related, and the debtor had acted as agent for both pieces of land, which were adjacent to each other). Accordingly this ground of appeal failed.

(2) The validity of arrestments served on SEERAD

The defender’s primary argument was that a strict approach must be taken to the validity of arrestments. In other words, the debtor must be correctly referred to and designed.

Both the Lord Ordinary and the Inner House acknowledged that whilst a strict approach is favourable, Scots law is not inflexible. Examples were given of cases where the debtor’s name was misspelt or the date of decree was incorrect – mistakes that ultimately did not prove fatal.

In reaching his decision as to the validity of the arrestments, the Lord Ordinary had questioned whether there was any real misunderstanding as to the true identity of the intended arrestee. Similarly, the Inner House asked whether the reasonable observer would be under any misunderstanding or misapprehension when faced with the terms of a particular arrestment. It held that, as the arrestment was was clearly directed at the Scottish ministers, the Lord Ordinary had not erred in law. It was pointed out by the court (and accepted by counsel for the reclaimers) that the courts tend not to look favourably on very technical objections, and there has been a trend to move away from such, starting with Henderson’s Trustees (1831) 9 S 618, through Henderson v Rollo (1871) 10 M 104 to Hannan v Kendal, 30 March 1897, unreported.

(3) Was there an arrestable obligation at the time the arrestment was served?

It was noted by the Inner House that the Scottish ministers had no discretion over the payment due to the debtor: they were obliged to verify his application and then to make payment. These were deemed to be circumstances which fall within categories of debts held to be arrestable in the full bench decision of Costain v SRU 1993 SC 650. Hence, there was an arrestable obligation at the time that the arrestment was served.

(4) Absence of averments of loss

An argument was advanced regarding absence of averments of loss, but was not proceeded with as a joint minute had been entered into. The reclaiming motion was refused, and the interlocutor of the Lord Ordinary was adhered to.

Advice for solicitors dealing with arrestments

This case demonstrates the following:

(1) The general rule against combining claims in one libel does have workable exceptions.

(2) An agricultural subsidy payment under the Single Farm Payment Scheme is an arrestable debt.

(3) A strict approach is taken to the accuracy of the designation of an arrestee, but Scots law is not inflexible. The test as to whether the arrestment is valid or not is one of objectivity: would the error be likely to give rise to a mistake, misunderstanding or misapprehension in the reasonable observer as to the identity of the arrestee or the scope of the arrestment?

(4) In this case the Scottish ministers seem to have simply taken a view as to the validity of the arrestments and then paid out to the debtor. With hindsight, the better course of action for the Scottish ministers may have been for them to consign the SFPS funds in court through the multiplepoinding procedure.

Solicitors should do their best to design the arrestee accurately; however as this case shows, a minor error may not invalidate the arrestment.