Smith v Lord Advocate
| Jurisdiction | Scotland |
| Judgment Date | 29 February 1980 |
| Docket Number | No. 19.,No. 20 |
| Date | 29 February 1980 |
| Court | Court of Session (Inner House - First Division) |
FIRST DIVISION.
Lord Kincraig.
Crown—Rights and liabilities—Compensation—Set-off—Whether Crown should be granted leave to claim set-off of debts unrelated to the Government department involved in the proceedings—Crown Proceedings Act 1947 (cap. 44), sec. 50 (2) (d).1
The liquidator of Upper Clyde Shipbuilders Ltd. (U.C.S.) raised an action against the Lord Advocate as representing the Ministry of Defence for payment of £1,353,369 stated to be due to U.C.S. by the Ministry. The Lord Advocate admitted that that sum was owed to the pursuer but sought leave under sec. 50 (2) (d) of the Crown Proceedings
Act 1947 to set off against that sum four liabilities of U.C.S. to Government departments which exceeded it. The Lord Ordinary (Kincraig) refused to grant leave to the Lord Advocate.Held (rev. judgment of Lord Kincraig) that there were no circumstances which could properly justify a refusal to grant the leave sought by the Crown under sec. 50 of the Crown Proceedings Act 1947; and that the appeal should be allowed and leave granted to the Crown to set off the liabilities of the pursuer as liquidator against the sum concluded for. In these circumstances the parties agreed that the action should be dismissed.
Observed that, where a Court is considering a question of exercise of discretion, it would seem best to ignore the question of onus and to come to a decision on the circumstances of which it is made aware.
Observed that in our common law and practice the Crown was regarded as an indivisible entity, the source and repository of the powers and duties of Government, and that the Lord Advocate is the representative of the Crown.
Robert Courtney Smith, as liquidator of Upper Clyde Shipbuilders Ltd. raised an action against the Rt. Hon. Ronald King Murray, Q.C., M.P., the Lord Advocate, as representing the Ministry of Defence for payment of £1,353,369.98 stated to be due and resting owing to the pursuer by the said Government department. This debt was admitted by the defender. The defender averred inter alia in answer: "The Secretary of State is entitled to retain the whole of said sum and to set it off against sums due by U.C.S. to the Crown or, alternatively, and in any event, to any of Her Majesty's Secretaries of State. As at the date of commencement of the liquidation U.C.S. had liabilities to the Crown which included: (a) loan due to the Secretary of State for Industry as successor to the Shipbuilding Industry Board, with interest accrued thereon—£3,640,671.00; (b) Sum due to Secretary of State for Industry as successor to the Minister of Technology under guarantee by U.C.S. dated 5th April 1968, of the obligations of Fairfields (Glasgow) Limited in respect of that company's 7 per cent unsecured Loan Stock, 1965, and interest thereon, less investment grants withheld amounting to £10,235.95—£959,755.76; (c) Sum due to Secretary of State for Health and Social Security in lieu of National Insurance Contributions—£3,791.55; (d) Sum due to the Inland Revenue less Selective Employment Tax refunds withheld—£687,620.72." The pursuer admitted the said liabilities. The defender further averred: "In so far as the Crown was owed sums by U.C.S. as at the commencement of the liquidation the defender as representing the Crown or, alternatively and in any event as representing Her Majesty's Secretaries of State is entitled to retain and set off against the aggregate of such sums all amounts due to U.C.S. in liquidation and to the pursuer as liquidator thereof. Further and in any event the defender is entitled, subject to leave of the Court, to set off against his liability to the pursuer all sums due by the pursuer to the Crown in any of its departments, and in particular the whole sums mentioned in answer 2. In so far as the respective obligations of the parties founded on in these proceedings give rise to claims by or against different Government departments the defender seeks the leave of the Court to set off the liabilities of U.C.S. against the liability of the Secretary of State for Defence to U.C.S. The liability of U.C.S. to the Crown in respect of each of said sums arose in the course of the shipbuilding and engineering operations of U.C.S. in the course of which the defender's liability to the company was incurred. Further said respective liabilities are all funded out of, or are payable into the Consolidated Fund." The defender pleaded inter alia:"4. The defender, being entitled to retain all sums due to the pursuer and to set them off against sums due to the Crown, should be assoilzied."
The pursuer pleaded inter alia: "4. The whole set-off sought by the defender being in the circumstances incompetent, leave should not be granted by the Court for any such set-offs and decree de plano should be granted as concluded for."
After a hearing in procedure roll the Lord Ordinary (Kincraig) repelled all the defender's pleas and granted decree for the sum sued for. The Lord Ordinary's opinion is set out at 1979 S.C. 384. The defender reclaimed and the case was heard before the First Division on 6th and 7th February 1980.
At advising on 29th February 1980, the opinion of the Court was delivered by Lord Avonside.
LORD AVONSIDE.—This is an appeal from the judgment of the Lord Ordinary in an action in which the respondent was pursuer and the appellant was the defender. The respondent is the official liquidator of a company Upper Clyde Shipbuilders Limited hereinafter described as "the Company." That Company has ceased to operate and the respondent is engaged in the winding-up of its affairs.
In the action the respondent called as defender the Lord Advocate "as representing the Minister of Defence in Scotland." In the answers on behalf of the Lord Advocate it was claimed that he represented the Secretary of State for Defence. Submissions were made to the effect that this difference in designation could affect the decision in this appeal in so far as there might be a distinction between the position of a Minister of a department of Government and a Secretary of State who would, in theory at least, enjoy wider and more general powers than would a Minister responsible only for a limited sphere of the activity of government. In pursuit of this submission reference was made to aspects of constitutional law. In the result however, it was apparent that the real issue in the case should not depend on so technical an approach and that this was not an occasion on which it would be either necessary or proper to attempt an examination of the constitutional distinction between a Minister and a Secretary of State. Moreover, the definitive section of the Act, section 38, provides that "officer" in relation to the Crown, includes any servant of His Majesty and accordingly (but without prejudice to the generality of the foregoing provision) includes a "Minister of the Crown." The breadth of the definition suggests that there is no room for fine distinctions.
In the action the respondent claimed payment from the appellant of £1,353,000 in round figures. That sum represented the amount due to the Company in respect of work done on the construction of and repair work on naval vessels under contracts with the Ministry of Defence on behalf of the Admiralty. The appellant admits that the sum concluded for is accurate and that it is still due to the Company.
The answer to the claim put forward by the respondent is that the Company is in debt to certain departments of Government, using that phrase in a neutral sense, and that the claims of these departments are considerably in excess of the sum owed to the Company. It is contended that the respondent "as representing the Crown … is entitled to retain and set off" against the debt owed to the respondent as liquidator the aggregate amount of the debts so owed by the Company. There is no dispute as to the amount of these claims.
The claims are set out under four heads; (a) a loan due to the Secretary of State for Industry as successor to the Shipbuilding Industry Board; (b) a sum due to the Secretary of State for Industry as successor to the Minister of Technology under a guarantee by the Company of Loan Stock issued by Fairfields (Glasgow) Limited; (c) a sum due to the Secretary of State for Health and Social Security in lieu of National Insurance Contributions and (d) a sum due to the Inland Revenue.
In the Court below, and again in this Court, the pursuer and respondent argued that, whatever else might be said, the defender and appellant could not set off the claims made under heads (a) and (b) above and it is as well to deal with these separate contentions now.
As to head (a) it is contended that as at the date of liquidation the debt of the Company was owed to the Shipbuilding Industry Board, which was set up by the Shipbuilding Industry Act 1967, and that that body was separate and independent and not part of a department of Government. The right to that debt was transferred to the Secretary of State for Industry after the date of liquidation. Therefore, it was said, there was no consensus and that the Secretary of State could not better his positionvis-à-vis the Company by acquiring, as it were, the right to a claim for a debt owed to an independent body. Accepting that the Board was an independent statutory body set up under the Act it must equally be accepted that its existence, at best, came to an end by the end of 1971 and that on or before that date its rights and liabilities vested in the Minister of Technology. The Secretary of State for Industry came in place of that Minister as a result of an Order made in 1970.
The parties accept as relevant the Lord Ordinary's quotation from Bell's Commentaries (II, 122) to this effect:—
"In compensation the debts must both be due at the same time … but this is a rule which holds strictly only while the parties are solvent. If one of them becomes bankrupt the other may defend himself against a...
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