Examining “Equitable” Retention
| Date | 01 January 2016 |
| Published date | 01 January 2016 |
| Pages | 18-41 |
| Author | |
| DOI | 10.3366/elr.2016.0320 |
Compensation, whereby one liquid debt reduces or extinguishes another liquid debt, is well understood. Similarly, retention of a sum due under a contract on the principle of mutuality is relatively well understood. What is less well understood is the “other type of retention”
Hume,
It is argued that when the legal landscape is considered in detail, compensation is a doctrine with a narrower scope than previously understood. Many cases described or pled as compensation are really cases of equitable retention.
See discussion at pp 22–23 below. On use of the term “equitable retention” see p 24.
Equitable retention was rarely used by defenders prior to the decision inSee discussion at p 27 below.
Part B sets out a framework for this area of law, including discussion of the categories of retention of debts. Part C considers equitable retention in detail. Part D provides comment on the factors identified in Part C as influencing the court's discretion when considering whether equitable retention should be permitted. Conclusions are drawn in Part E.
A crucial distinction exists between compensation and retention of debts. Compensation operates to extinguish debts, retention does not. Retention operates to suspend or delay payment only.
Stair,
It has been said that compensation, like many concepts in Scots law, suffers from the use of inconsistent terminology.
W W McBryde,
W M Gloag,
McBryde argues that “set off” might be the better term: see
W M Gloag and J M Irvine,
This may be until performance of a counter obligation (mutuality retention) or until compensation can take place (mutuality and equitable retention): see later discussion at p 23 and pp 26–27.
Some of the difficulties in terminology perhaps stem from the historical development of compensation and retention of debts in Scots law. Many consider retention of debts to be an extension of compensation.
Lords Hope and Rodger in
Compensation has been known to the law of Scotland from at least 1592 (in the form of the Compensation Act of that year).
There is some doubt as to whether compensation was part of Scots law prior to 1592. Stair states that it was not (
Compensation operates where claims are liquid
A liquid debt is a debt which is presently due and payable. As such, the sum due must be ascertained or immediately ascertainable. Conversely, an illiquid debt is not presently due and payable. Indeed, an illiquid debt may not yet be ascertained, such as where damages are sought; the court must determine that damages are payable and the amount due by way of damages.
and of the same nature: where A has a liquid claim against B for £100, and B has a liquid claim against A for £50, the claims can be set against each other so that B pays the balance of £50 to A. In general an illiquid claim cannot be set off against a liquid claim.Gloag & Irvine,
Stair stated that compensation would arise
Bell,
Ibid.
In cases decided shortly after the 1592 Act, the rule that compensation only applied to liquid debts was strictly adhered to. In three early seventeenth century cases
Any sort of grain or corn: see Watson,
There appear to have been other issues preventing the pursuer's oath from determining the matter in
Comments in the report of
Bankton,
Erskine's
our uniform practice for near a century, which seems grounded on the Roman law, … if a debtor in a liquid sum shall plead compensation upon a debt due by his creditor to him, which requires only a short discussion to constitute it, sentence is delayed
Erskine,
J Trayner,
Erskine,
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