Scottish Court of Session Decisions

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Cite as: [2008] CSOH 121, [2008] ScotCS CSOH_121

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OUTER HOUSE, COURT OF SESSION

[2008] CSOH 121

OPINION OF LADY DORRIAN

in the Petition

THOMAS PARK AND ANOTHER

Petitioners;

for

Partial Recall of Inhibition

________________

Petitioners: Davidson; Wilson & Terris

Respondents: Bartos; Balfour + Manson LLP

19 August 2008

Background

[1] The petitioners are spouses who formally traded from heritable subjects known as "The Grapevine Restaurant" in Bothwell, which they occupied under a long lease. In or about March 2006 two other persons, Graeme Low and Lynne Kennedy obtained an interest in the business and entered into a partnership with the petitioners. An action was raised by the respondent in Hamilton Sheriff Court in late December 2006 against all four partners seeking payment of a sum of £204,000. There is no dispute that this sum eventually found its way into the partnership, although the method by which it did so is disputed. The petitioners were inhibited by the respondents by letters of inhibition registered on 18 September 2007 following registration of a notice of inhibition on 31 August 2007.

[2] The petitioners aver that they entered into missives dated 7, 10 and 31 August 2007 for the sale of the lease. They aver that the inhibition is not effective to prevent them from implementing the missives of sale "which were concluded prior to the said inhibition being registered". The respondents aver that the inhibition became effective on 31 August 2007 as a result of the notice of inhibition and, the missives not being concluded before that date, the inhibition is effective to prevent implement of the missives. The case therefore came before the court on the question of when the inhibition took effect and notes of argument on that issue were exchanged between the parties.

[3] As the hearing developed, it became apparent that an argument that the inhibition was oppressive could not proceed because of a factual dispute between the parties. It also appeared that there might in fact be a further dispute as to whether missives had properly been concluded because of the use of a fax. It seemed to me unsatisfactory that these issues, particularly that relating to the missives, had not been addressed before the case was put out for a hearing on the effectiveness of the inhibition, nor was it raised at the hearing until the start of the submissions for the respondent. As a result, the case proceeded, at the parties instigation, on the basis of an assumption that the missives had indeed been concluded on 31 August 2007.

The issue
[4] Parties were agreed that an inhibition will strike only at deeds or debts entered into or contracted after its date. In the case of a conveyance of heritable property, the missives form a binding obligation and it is the date of the missives and not that of the conveyance which is relevant. [Halifax Building Society v Smith 1985 S.L.T. Sh. Ct. 25] In this case, the missives were concluded on 31 August 2007. The notice of inhibition was recorded on the same date.

[5] Section 155 of the Titles to Land Consolidation (Scotland) Act 1868, as substituted by section 149 of the Bankruptcy and Diligence Etc (Scotland) Act 2007, and effective from 1 April 2008, reads as follows:

"(1) An inhibition has effect from the beginning of the day on which it is registered unless the circumstances referred to in sub-section (2) below apply.

(2) Those circumstances are -

(a) a notice of inhibition is registered in the Register of Inhibitions;

(b) the schedule of inhibition is served on the debtor after the notice is registered; and

(c) the inhibition is registered before the expiry of the period of 21 days beginning with the day on which the notice is registered.

(3) In those circumstances the inhibition has effect from the beginning of the day on which the schedule of inhibition is served.

(4) A notice of inhibition must be in (or as nearly as may be in) the form prescribed.

[6] As at 31 August 2007 however, that section read as follows:

"It shall be competent, before or after execution of any inhibition, whether by separate letters or contained in a summons before the Court of Session, to register in the General Register of Inhibitions a notice thereof, setting forth the names and designations of the persons by and against whom the same is raised, and the date of signetting the same, in the form or as nearly as may be in the form of schedule (PP) hereto annexed; and where any such inhibition and the execution thereof shall be duly registered in the General Register of Inhibitions not later than 21 days from the date of the registration therein of such notice thereof, such inhibition shall take effect from the date when such notice was registered as aforesaid, but otherwise only from the date of the registration of such inhibition and the execution thereof; and no inhibition shall have any effect against any act or deed done, committed, or executed prior to the registration of such notice thereof, or of such inhibition and the execution thereof, as the case may be."

Parties were in dispute about the meaning of the phrase "shall take effect from the date when such notice was registered" and the corresponding meaning of the words "executed prior to the registration of such notice". The respondent maintains that for the purposes of section 155 as originally enacted, an inhibition takes effect from the beginning of the day on which a notice was registered and that only acts or deeds done, committed or executed prior to the beginning of that day are protected against the inhibition. For the petitioners the submission was that the inhibition takes effect only at midnight on the day of recording or at best, at close of business on the day of recording, and that any act or deed done, committed or executed before that will be protected against the inhibition.

Submissions for the petitioner
[7] Counsel referred to Gretton: The Law of Inhibition and Adjudication 2^nd edition (1996), page 38 where the writer considers the time from which an inhibition is effective. Having noted the terms of Section 155 as originally enacted, he observes that:

"[the] question arises when an act which would be struck at by the inhibition occurs on the same day as the inhibition takes effect. Section 155, as has been seen, speaks only of the 'date' and says nothing of the actual time of recording. The Register of Sasines Act 1693 (Chapter 23) made provision for the actual time of recording to enter the Register of Inhibitions, but this provision was repealed by Section 29(3) of the Land Registration (Scotland) Act 1979, with the result that now only the date is noted. As a consequence, the actual time of recording cannot be relevant. The law must deem the inhibition to take effect at some fixed time, regardless of when it was actually recorded. This might be the beginning of the day, or the end of the day, or some arbitrary time during the course of the day. It is difficult to devise any solution which would not, in some circumstances, work injustice to the inhibitor or to a third party. On balance, however, the least bad solution would seem to be that the inhibition should be deemed to take effect from the end of the day, perhaps subject to the proviso that a third party will nevertheless be affected if in bad faith. But this is not more than a conjecture. In Livingston v McFarlane a sale on the evening of the inhibition was reduced, but the circumstances were special."

[8] Counsel relied heavily on this passage urging me to adopt the "least bad solution" making the inhibition effective from the beginning of the day after registration of the notice. He referred to the case of Livingston v McFarlane (1842) 5 Dunlop 1 referred to by Professor Gretton. In that case, letters of inhibition were executed against the debtor on 18 June and against the lieges on 19 June. It was averred that following service on the debtor and before execution against the lieges, the debtor and the second defender colluded together to create a false minute of sale for the purpose of defeating the inhibition. The minute of sale had been concluded in the evening of the 18^th and the inhibition had been served on the debtor at 2 p.m.. In charging the jury, the Lord Justice Clerk said that if there was a valid and binding bargain to sell the subjects concluded before the execution of the inhibition, the sale itself, though not completed until after the inhibition, could not be set aside. Counsel submitted that this case gave some support to his argument since it seemed in that case that, but for the collusion, the defender would have succeeded even although the sale was concluded after the time of service on the debtor of the inhibition.

[9] Counsel then referred to the Law and Practice of Diligence by Maher and Cusine (1990), paragraph 9.15 to the effect of an inhibition on future acts. He sought partial recall of the inhibition in so far as it related to the subjects of the lease.

Submissions for the Respondent
[10] Under reference to Erskine II,11,2 and II,11,11, counsel submitted that the questions were, when does an inhibition take effect? and when can an obligation be described as anterior to an inhibition? Section 155 of the Titles to Land Consolidation (Scotland) Act 1868 required to be seen against the background of the law which existed before then. He referred to Stair IV,50,7 to IV,50,19 noting that inhibitions were long in use before the requirements of registration, and that

"the lieges could not be put in mala fide to buy from or bargain with the person inhibited, unless the inhibition were published at the market cross of the jurisdiction where he lived; and at the market crosses of the several jurisdictions where his land lay."

Registration was first introduced in the sixteenth century and a general register at Edinburgh was established in 1600. Failure to register an inhibition rendered it null, but it could be registered within 40 days of publication at the market cross. Inhibitions extended against voluntary facts and deeds "after the first publication thereof at the market cross where the inhibited person dwells, and not after the registration." Counsel submitted that the system whereby an inhibition became effective on publication so long as registered within 40 days, had some parallels with the notice procedure under Section 155 of the Titles to Land Consolidation (Scotland) Act 1868. He submitted that prior to that Act, the critical point was whether an obligation had been entered into before publication of the inhibition at the market cross. It was clear that the inhibition came into effect from the moment of publication at the market cross and not only on subsequent registration.

[11] Counsel submitted that Livingston v McFarlane required to be interpreted in the light of the passages in Stair to which he had referred. It showed that where parties enter into an agreement to alienate heritable property with a view to defeating the use of an inhibition, that inhibition can become effective from the date of execution on the debtor, thus allowing reduction of the agreement. It was an application of the rule that no person should benefit from his own fault or wrong doing.

[12] Counsel referred to the Land Registers (Scotland) Act 1868 (formerly the Land Writs Registration (Scotland) Act), Section 16 which provided that no publication would in future be necessary but that registration "shall for all purposes whatsoever have all the legal effect of publication at present in use." Counsel submitted that there was no basis for concluding that a fixation to the market cross rendered the inhibition effective only from the day after. It became effective from the moment of affixation and when registration acquired the legal effect of publication, an inhibition became effective from the moment of registration. To apply the inhibition only from the day after would create a window of opportunity for evasive action to be taken.

[13] He then turned to the effect of registration statutes, starting with the Registers of Sasines, Reversions Etc Act 1693 which noted that difficulties had arisen by the keepers of the registers not inserting deeds in the registers

"at the time and in the order they were presented to them, whereby none could know by inspection of the registers what writs appointed to be registrate were in the hands of the keepers of the registers and thereby could not securely bargain."

To address this problem, the section ordained that the keepers of the registers

"shall keep minute books of all writs presented to them to be registrate in their several registers expressing the day and hour when ... the said writs shall be presented."

Counsel submitted that although this act was not relevant to effectiveness of an inhibition when enacted, it became significant when Section 16 of the Land Registers (Scotland) Act 1868 made registration equivalent to publication. However, by virtue of Section 29(4) and Schedule 4 of the Land Registration (Scotland) Act 1979, the words "and hour" were deleted from the Register of Sassines Act 1693. Counsel's primary submission was that the effect of this amendment was that, from 1979 onwards, it was the date alone which became the touchstone for the effectiveness of an inhibition. His fallback position was that the 1979 Act and the Act of 1693 merely related to the keeping of registers rather than to effectiveness and that, for the purpose of effectiveness, time was still important. He submitted that there was nothing to indicate that by the 1979 Act, Parliament intended that notices of inhibition should become effective only on the day after registration or that an inhibitor should be worse off after the passing of that Act than they were beforehand. Moreover, nothing in Section 155 of the Titles to Land (Consolidation) (Scotland) Act 1868 lent support to such a proposition. In the passage in The Law of Inhibition and Adjudication (2^nd edition) by Professor Gretton relied on by the petitioners, the writer did not consider whether the 1979 Act was intended to make registration less effective from a point of view from an inhibitor than it had previously been.

Discussion
[14] I do not think that I can draw many conclusion from Livingston v McFarlane about the date or time at which an inhibition becomes effective. It is difficult to take from that case anything beyond the basic proposition that where missives are concluded before the date on which an inhibition becomes effective, they will not be struck at by the inhibition. It seems to me that the real question at issue in that case was whether the minute of sale was a genuine transaction or one which had been collusively and falsely got up to defeat the fair operation of the inhibition. Had the transaction been a genuine one, the inhibition would not have been struck at it, since the inhibition was not published against the lieges until the following day, the 19^th. The jury clearly concluded that the transaction was collusive and so it was set aside for that reason. In my view, the timing of the execution on the debtor and of the minute of sale, both being on the 18^th, were not relevant to the question of when the inhibition came into effect. It would not have done so before publication to the lieges on the 19^th. Rather the issue of timing was relevant to the question of whether the minute of sale, coming only hours after the debtor had been given notice of inhibition, was in mala fide. I do not agree with either counsel that the case shows that an inhibition was capable of coming into effect from the time of execution on the debtor alone. The nature and circumstances of the case are such that it offers no assistance to the fundamental question which was addressed before me.

[15] I agree with Professor Gretton that the actual time of recording cannot be relevant and the law must deem the inhibition to take effect at some fixed time regardless of when it was actually recorded. Before 1868 three conditions were required to make an inhibition effective: publication to the debtor; publication to the lieges; and registration. Publication to the lieges was effected by affixing the letters of inhibition and execution to the market cross whilst crying three oyesses. The letters required to be registered within 40 days of publication, with the effect that a creditor would be secured against all voluntary deeds granted after such publication. (Erskine II,xi, 7 ). Stair observes that this "can only be reckoned after the first publication where the inhibited party dwells" (IV,50,10, and 11) which formed the basis for the respondent's submission that use of the term "first publication" meant that inhibitions became effective from the actual moment of publication. I do not agree. Stair is using the term in the sense of first publication at the market cross where the debtor dwelt to distinguish it from publication at the market crosses of the areas where the debtors various lands lay. At one time publication in all of these was necessary: when Stair was writing it was no longer necessary, but a practice had developed whereby publication was still made at the market cross where the lands lay. In the passages referred to there is nothing to suggest that it was the time or moment of publication rather than the date which had significance.

[16] Nor do I think this was affected by the Act of 1693. That act was passed to address the fact, as Stair points out (IV,50,12) that the keepers of the registers kept inhibitions uninserted very long, causing purchasers to become insecure. The Act itself points out that the result was that persons "could not securely bargain". The Act was therefore designed to secure that deeds were properly registered in the order and at the time when they were received so that there was no unnecessary delay in the public being informed of the act in question. The Act of 1693 concerned registration not effectiveness.

[17] Section 16 of the Land Writs Registration (Scotland) Act 1868 provided that registration should have all the legal effect of publication but there is in my view no basis for suggesting that this had any bearing on the question of when the inhibition should take effect. It would take effect from the date of registration as it had become effective from the date of publication, not from the hour or moment. This would seem to be confirmed by section 155 of the Titles to Land Consolidation (Scotland) Act 1868 which introduced the notice procedure referred to above, but otherwise confirmed that an inhibition would become effective from the date of registration. Where a notice had been registered, and followed not later than twenty-one days from the date of registration by registration of the inhibition, the inhibition took effect from the date when the notice was registered. In my view by stating that the inhibition became effective "from the date" of the inhibition, rather than the hour and minute, the Act intended that portions of the day in question should not be taken into account. By making it effective "from" a given date I think it is reasonable to conclude that the intention was that an inhibition would become effective from the conclusion of the day of registration i.e. from the commencement of the following day. By the time of this provision, the hour and time of registration had been recorded for nearly two hundred years. Had Parliament wished to specify that an inhibition came into effect from the hour or minute of registration it would have been very simple to introduce such a provision.

[18] It is clear that there were concerns prior to 1693 that persons might not know with whom they could safely contract. Those problems had not disappeared after the passing of the act because there was still the availability of the forty days for registration. During that period a search of the register would not disclose an inhibition and so parties were put under the necessity of searching the signet as a safeguard. Presumably section 155 was intended to improve that situation: an inhibition when registered would only draw back to an earlier date if a notice had also been registered, making it much easier for parties to identify those with whom they could safely contract. This would be weakened slightly if the effectiveness of the inhibition stemmed from the start of the day on which it was registered: an innocent party might in the morning have contracted with, and paid large sums of money, to a person inhibited late in the afternoon. A search of the register on that date would presumably not show an inhibition registered during the currency of the day. If the inhibition were to commence at the end of the day, such innocent third parties would be protected. Of course, on the other hand, commencement at the end of the day leaves open the opportunity for an unscrupulous debtor to concoct and conclude a bargain for the purpose of defeating the inhibition, as happened in Livingstone. However, the prospects of this happening in practice seem fairly remote: moreover, if the transaction were collusive or not in good faith, then it would not defeat the operation of the inhibition, on the authority of that case. In conclusion it seems to me that both the wording of the legislation and an assessment of the potential injustices resulting lead to the conclusion that for the purposes of section 155 of the Titles to Land Consolidation (Scotland) Act 1868 as originally enacted an inhibition takes effect from the conclusion of the day on which it, or the prior notice, was registered.

[19] I recognise that Parliament has now made the position clear by amending section 155 and providing that an inhibition takes effect from the beginning of the day of registration or of service of the schedule. That does not affect the reasoning I have outlined above. It is important that certainty be introduced and the law before the introduction of this recent provision was not clear. As Professor Gretton pointed out, and as I have addressed above, the selection of any specific point may result in injustice and there must be a somewhat arbitrary element in the selection of the starting point. A factor which arose previously was that a person could effectively be inhibited without knowing it: that mischief has been addressed, since registration now involves registering the schedule of inhibition as well as a certificate of execution (section 148). Whether or not the notice procedure is used, therefor, an inhibition will not take effect before the day on which the schedule is served, albeit at the start of that day. Parliament may have decided that the risk of injustice attendant on a selection of the start of a day are less than those which may arise if the end of the day were selected; they may have decided that the risks are evenly balanced. However, this does not affect the interpretation of the legislation which preceded this.

[20] It was agreed that I should put the case out by order for discussion on further procedure and that is what I shall do.