The recent decision in UK Bankruptcy Ltd [2010] has once again highlighted the different approach taken by the jurisdictions of Scotland and England. Although not separated by any physical boundaries the decision of the Inner House in UK Bankruptcy Ltd, which concerns the rights of audience of companies in Scotland, shows there are perhaps some lines that will just not be crossed.
UK Bankruptcy concerned the important question of rights of audience and, in particular, who has the right to represent a company in the Scottish courts.
In 2008 the Secretary of State for Business, Enterprise and Regulatory Reform (Secretary of State), now the Secretary of State for Business Innovation and Skills, applied to the Outer House of the Court of Session in Edinburgh to wind up UK Bankruptcy Ltd on grounds of public interest. One of the company’s two directors wanted to defend the winding-up petition and lodged answers (defences) on behalf of the company. The director also appeared in person at a hearing before the Outer House and attempted to oppose the winding-up petition, on behalf of the company. The Secretary of State, relying on an established line of authority, challenged the director’s ability to represent the company in proceedings before the court.
A Man’s a Man for a’ that
The Secretary of State argued that in Scotland, a right of audience – the ability to represent a party in proceedings before the court (there are different rules for small claims and summary cause proceedings) – is only available to the party itself (ie a natural person). In the case of companies, partnerships and other non-natural persons, a solicitor, advocate or solicitor advocate must be instructed. In other words, individuals can represent themselves, but a company, being a corporate body, must be represented by a legally qualified practitioner.
In putting forward this argument the Secretary of State relied on the decision of Equity and Law Life Ass Soc v Tritonia Ltd (1943) which confirmed that a company, as a legal personality, must be represented by solicitors or counsel. It was not therefore competent for a director to defend a winding-up petition.
The director in UK Bankruptcy Ltd, however, argued that if the court did not allow him to defend the winding-up petition, in his capacity as a director of the company, that would infringe the right to a fair trial under Article 6 of the European Convention of Human Rights. The director also argued that the decision of Equity and Law Life was no longer good law given its age and that it had been superseded by legal developments. The director maintained that if the case was being heard before the English courts, he would have the right to appear on behalf of the company. The director concluded that if all these factors were taken into account he ought to be allowed to defend the action as a director on behalf of the company.
The Outer House did not agree with the director’s arguments and considered that the rule established by Equity and Law Life made it clear that a director did not have a right to represent the company before the court. The court noted that if the director did wish to defend proceedings on behalf of the company, he would be able to do so, but only in his capacity as a shareholder – not as a director. The court was aware of the director’s concerns that if he defended the action as an individual shareholder, he may expose himself personally to an award of expenses should the Secretary of State ultimately succeed in the application.
The court expressed the view that, no matter how unattractive exposure to an award of expenses might be to the director, if he chose to trade through the medium of an incorporated body and derived the benefit of doing so, he must also be prepared to accept the disadvantages to which separate legal personality gives rise. In Scotland, this would include the requirement that the company must be represented by legally qualified practitioners in court proceedings.
The decision in Equity and Law Life is a House of Lords decision and therefore binding on the court. Accordingly, the court could not grant the director permission to appear in person to represent the company. The judge at first instance did consider that exceptional circumstances could arise where the court may allow a company to be represented by someone other than a legally qualified practitioner. Given the importance of this matter and relying on a practice that dates back to at least 1825, the judge in the Outer House reported the matter to the Inner House of the Court of Session to determine whether in this particular case the director should be allowed to represent the company. The Inner House was asked to consider three questions – firstly, whether to comply with Article 6 there needed to be an arrangement to allow unqualified persons a right to appear in the court to represent a company; secondly, what were the circumstances under which such an arrangement should be available; and thirdly, what such an arrangement under those circumstances should be.
Scottish approach
In determining these questions, the Inner House not only heard submissions from the Secretary of State, but also from the Lord Advocate (who represents the Scottish government in devolved matters) and Advocate General (who represents Westminster). The Lord Advocate and Advocate General were invited to be party to the action as the case raised wider questions about public policy and the administration of justice in Scotland. The Outer House had determined that the director had no right of audience so he was excluded from appearing before the Inner House. The court did, however, appoint senior and junior counsel to act as amicus curiae.
In dealing with the report from the Outer House, the Inner House considered the foundation of the rule in Scotland that the only person who is entitled to represent a party in proceedings before the court is the party himself (where a natural person) or a legally qualified practitioner. The rule, enacted by the College of Justice Act 1532 (the 1532 Act), in fact, dates back to when the Court of Session was first established. At this time James V of Scotland was on the throne, Sir Thomas More was the Lord Chancellor of England and Henry VIII had just announced his ill-fated engagement to Lady Anne Boleyn.
The 1532 Act was enacted to regulate practice and procedure before the court. Paragraph 51 of the 1532 Act provides:
‘That na man enter to pley, bot parties conteined in their summoundes and their procuratoures, gif they will ony have.’
For those not well versed in old Scots, the commentator James Anderson Maclaren provides a reliable, and perhaps more intelligible, translation:
‘A member of the Faculty of Advocates is the only person allowed to plead before the Court of Session, with the exception of a party to the cause.’ (Court of Session Practice, p14, W Green & Son Ltd, 1916)
Helpfully, another Scottish commentator, David Maxwell, provides a succinct explanation of the rationale underlying this rule:
‘Limiting a right of audience on behalf of others to members of the Bar, secures that the court will be served by advocates who observe the rules of their profession, who are subject to a disciplinary code, and who are familiar with the methods and scope of advocacy which are followed in presenting arguments to the Court.’ (The Practice of the Court of Session, p24, Scottish Courts Administration, 1980)
It will come as no surprise that the Inner House thought these were qualities that should be upheld in Scottish legal proceedings.
The director had argued that, given the passage of time, Equity Law Life was no longer good law. Not only did the Inner House disagree with this contention, but it considered that the 1532 Act was still good law that has been consistently applied by the Scottish courts since it came into force (subject only to certain modern extensions of rights of audience to solicitor-advocates).
Compatibility
Interestingly, the court considered that the question of an Article 6 infringement did not arise in this case. This confirmed the view of the Outer House, that found there was no general incompatibility between the rule that a company must be represented by a suitably qualified legal practitioner (who had responsibilities to the court and was subject to professional discipline) and the right to a fair trial.
The judge in the Outer House did think that in some cases, where there may be exceptional circumstances, the court would have to allow a director to appear personally to represent a company to ensure a fair hearing under Article 6. This view was shared by the Secretary of State, Lord Advocate, Advocate General and the amici. They all favoured relaxation of the rules, but subject to certain safeguards being in place.
The Inner House considered that the company would have to show exceptional circumstances had arisen to allow the normal restrictive rule to be extended and for a director to be given leave to appear for a company. In UK Bankruptcy Ltd there was no evidence before the court to show that exceptional circumstances had arisen. There was also no evidence before the court to show that the director had obtained the company’s authority to act on its behalf and that the director was representing the company out of necessity because the company had insufficient funds to pay legal fees.
Union of the Crowns?
As mentioned earlier, there was a general consensus among those addressing the court that the usual restrictive rule of rights of audience of a company should be relaxed, but subject to certain safeguards. In coming to this conclusion, consideration was given to the practice in England and Wales where employees are entitled, subject to certain conditions, to represent a company.
The English position came about following the ‘Access to Justice Report’ by the Rt Hon Lord Woolf in 1996 (the Woolf Report) which considered rights of access to justice in England and Wales. Following on from consultation, the Civil Procedure Rules (CPR) 1998 were enacted, which allow a company to be represented at trial by an employee, if it can be demonstrated that they are authorised to appear on behalf of the company and the court gives them permission to do so.
The CPR English rules are accompanied by a practice direction, which requires the company to produce information about the intended representative in a written statement. The company must also give written vouching of the identity, position and authority of the proposed representative, together with the requisite authority of the managing director or the board of directors in a resolution.
These requirements were introduced to act as safeguards and to provide the court with the comfort that the person representing the corporate body had the requisite authority of the company to act. Without wishing to labour the point, a company as a non-natural person is in a rather unique position in that the directors who run the company have duties and responsibilities to the company. There are instances where directors find it difficult to distinguish between themselves as individuals and as directors. The lines are blurred and directors forget they have an inalienable obligation to act in the best interest of the company, even if the interests of the company do not coincide with those of the director.
RelaX… don’t do it?
The Inner House had to consider whether it was appropriate for the usual restrictive rule to be relaxed in Scotland, subject to the safeguards suggested by parties. Should the court simply follow the English model? Was the court able to do that?
It was certainly the view of those addressing the court that the restrictive rule of the rights of audience of companies should be relaxed in certain exceptional circumstances but there was divergence of opinion as to the best method to achieve such relaxation. Should the court simply use its wide discretionary powers to relax the rule or was secondary legislation required?
The Inner House considered that, as the 1532 Act was still in force and the specific rule set out in Equity and Law Life remained good, the court could not use its inherent power to regulate its own procedure, or introduce an act of sederunt, to modify or extend rights of audience. Furthermore, given the fundamental importance of rights of audience for companies it would not be appropriate for the court to make a one-off decision.
Conclusion
In Scotland, the court has not been prepared to extend the rights of audience to employees or directors of a corporate body. To some it may seem rather antiquated and irrational for Scotland and England to have different rules on rights of audience. To those naysayers, we are reminded of Mr Darcy’s retort in Pride and Prejudice: ‘Even savages can dance’. To some, this decision may appear unsophisticated, but in fact it goes to the very core of the Scottish legal system. It confirms the function and role of the judiciary in Scotland.
The court in this decision is reinforcing its view that its role is to apply the law and not to make policy, even if the law does date back to 1532. If the legislator considers that rights of audience for companies should be extended in Scotland, the proper consultative process should take place and the necessary legislation introduced.
Perhaps, though, the legislator may heed the observations made by the court that extending rights of audience beyond legally qualified practitioners could risk the smooth running of the Scottish judicial system and the efficacy of court proceedings in general. It would inevitably lead to wider questions of rights of audience by other unqualified representatives such as trustees and commercial partners. It is no great secret that in the current economic climate public bodies, which include the Scottish court service, are facing ever greater budgetary pressures. By extending rights of audience to unqualified persons it is likely to put greater pressure on the resources of the court.
By Lucy McCann, senior solicitor, Brodies LLP.
E-mail: lucy.mccann@brodies.com.