In England the situation is remedied by way of longstanding equitable principals allowing debts to be offset against each other, but no such principal exists in Scotland.

In a recent case Clyde and Co, acting for a local authority defender, had to rely on legislation that is now more than five hundred years old and written in Scots to ensure the client did not have to pay £1,500 to a person that already owed them over £7,000.

In the case of Tracy Mills v North Lanarkshire Council at Airdrie Sheriff Court the defender, represented by Clyde and Co, made an offer in settlement of £1,500 which was accepted before the defender had realised that the pursuer owed over £7,000. The question was whether the council could offset the £1,500 against the council tax arrears, or if they would have to pay the pursuer £1,500 while trying to recover the council tax arrears separately.

The council had concerns that if they paid the £1,500 it might be difficult to get it back again from the pursuer, and therefore wanted to simply deduct the £1,500 from the council tax arrears. The pursuer refused and made reference to the fact that the offer of settlement had made no reference to the arrears or any intention to offset. The defenders relied upon the little known Compensation Act 1592 to try and persuade the court the debts should be offset.

The Act is written in Scots and has a single section allowing:

“Oure Souerane Lord and estaitis of parliament statutis and Ordanis that ony debt de liquido ad liquidum instantlie verifiet be wreit or aith of the partie befoir the geving of decreit be admittit be all Jugis within this realme be way of exceptioun Bot nocht eftir the geving thairof In the suspensioun or in reductioun of the same decreit”

Essentially the Act requires that the debt which the party is looking to offset must be (i) liquid; (ii) instantly verifiable by writ or oath; (iii) and pled before judgment is pronounced.

In this particular case the difficult part for the council was the third leg of the test. The debt was certainly liquid - it could be verified by awards issued by the same court for the council tax arrears - but at the stage of settlement it was not pled. The court pleadings were still capable of adjustment to include a plea of compensation once the council realised there were arrears, but that realisation happened after the offer of settlement had been accepted.

The case called before the Sheriff and the pursuer argued offset should not be allowed because there had been no mention of the arrears at the point of settlement. It was too late in the day for the defender to seek to rely on their plea of compensation after settlement regardless of the fact that the case had not been finally disposed of at court.

This argument probably would have had some force had it not been for a 2010 Supreme Court decision in the Scottish case of Inveresk v Tullis Russell. That case involved a dispute arising out of the sale of property rights in a brand of paper. As part of the case, the appellants included a plea of retention pleading that they were entitled to retain some of the consideration due under an asset purchase agreement pending payment of sums due to them by the respondents. Although the case concerned retention Lord Rodger took time to consider the lesser known Scots law of Compensation and mentioned the 1592 Act. He made it clear that there is no need for the debts to be like for like arising out of similar obligations, and there is no restriction in relation to when the plea can be entered so long as it is before “judgment”.

As a result, the Sheriff was persuaded by the obiter comments of Lord Rodger to rule in favour of the defenders.

It is a peculiar quirk of Scots law that what is a fairly obvious right to set off two competing debts in England, is only achievable in Scotland using an Act which is 424 years old and written by a Parliament that was abolished, but Scots law has a long memory it seems.