COMPENSATION OF DEBTS DUE TO AND BY THE CROWN (Hansard, 22 July 1985)

§ Mr. Millan
I beg to move, That the clause be read a Second time.
Although this is an excellent new clause, I am not as confident that the Government will accept it as I was about the other two clauses. It deals with compensation for debts due to and by the Crown. It is a modified version of the 770 new clause which I moved in Committee, in that it is a more modest attempt to reduce the procedure of compensation at present available to the Crown.
Later we shall deal with the question of Government preference. In a bankruptcy, the Government have both preference on debts and the advantage that, if they owe money to the debtor's estate, they can search for another Government Department which may be owed money by the debtor and set one against the other. That applies to both statutory debts and ordinary debts arising from contractual obligations, which may be in respect of the supply of goods under an ordinary commercial contract.
As the Government are now all pervasive—not all persuasive, because they are greatly unpersuasive—and large numbers of Government Departments are involved in all sorts of different activities, the Crown has advantages which no individual creditor can possibly have. The principle of compensation and set-off is well established in Scottish law. In the case of the Government, it is taken to extremes. The new clause would limit it to either contractual debt obligations or statutory obligations. It is a restrictive new clause.
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Apart from the equity of the matter, there are practical difficulties in settling sequestrations in certain circumstances. Those who are involved in this area of activity tell me that it is sometimes difficult to get money from a Government Department because it will spend a great deal of time making absolutely sure that it cannot avoid paying the money and that the debtor did not owe it or another Department money. As the rest of the Bill reduces Government preference, it is anachronistic to maintain the full rights of compensation and set-off of the Crown. The clause would reduce the set-off considerably. It is an excellent new clause and it will be a pity if the Government do not accept it.

§ The Solicitor-General for Scotland
I am pleased that the right hon. Member for Glasgow, Govan (Mr. Millan) recognised the difficulties that would have ensued if he had sought, as he did in Committee, to prevent a set-off of debts owed to and by different Government Departments. With regard to the remainder of his new clause, my arguments in Committee remain unchanged, and unless he and and other hon. Members wish me to rehearse them, I shall not do so.
A further factor must be considered. If a change were made in the Bill to the law relating to compensation, it would create an anomaly, not only between the English and Scottish personal bankruptcy procedures, but between the law of compensation as it relates to company insolvency in Scotland and as it would relate to personal bankruptcy in Scotland. [Interruption.] If the right hon. Member for Western Isles (Mr. Stewart) did not care for the first argument, he will see the force of the second.
The right hon. Member for Govan said in Committee in relation to Crown preferences that the argument for a consistent approach throughout the United Kingdom was powerful. The same is true for compensation and set-off. To have one system applying to personal bankruptcies in Scotland and another to all the remaining insolvency procedures in Great Britain is a recipe for considerable confusion and dissatisfaction.

§ Mr. Millan
I believe in consistency, which is why I tabled a similar new clause to the Insolvency Bill last Thursday, not with conspicuous success.

§ The Solicitor-General for Scotland
I appreciate that the right hon. Gentleman is anxious to secure consistency. He may feel that he has been badly done by in the House, in that his argument has not secured the favour that he believes it deserves. Nevertheless, if the right hon. Gentleman appreciates that he cannot secure a general change, he should found on his failure and have a consistent approach here.
For that reason, and without rehearsing the more general arguments on compensation or set-off, I ask the right hon. Gentleman to withdraw his new clause.

§ Mr. Dewar
My right hon. Friend the Member for Glasgow, Govan (Mr. Millan) will not have been surprised by the Minister's response. Indeed, there was a hint of his expectation in the way in which he moved the new clause. It is unfortunate that the Government are not prepared to consider the arguments more sympathetically. I did not have the advantage—I use the word a little timidly—of serving on the Committee or of being involved at any stage in the Insolvency Bill, which overshadowed and prejudged many of the decisions made in connection with this Bill. However, I am not greatly impressed by the Minister's arguments on this occasion, although I did not have the advantage of hearing him at length in Committee.
The fact that there would be a gap between insolvency law for companies and personal bankruptcies might lead to some difficulty, but, as my right hon. Friend said, if the new clause were valid, it would be logical to import a similar approach into the other Bill and not merely to trump the argument by saying that we had made a mistake in the first place. The merits of the matter should rule. In any event, company law has always been on a United Kingdom basis, whereas, almost from the first decade of this century, bankruptcy law has been considered on the different Scottish legal basis.
I agree with my right hon. Friend that there is a problem with the unbridled right to compensation which the Crown has, and the new clause is clearly an attempt to find a reasonable limitation by stipulating that the right to set-off should be limited, as described, to sums owed and sums payable under statute, or to the set-off between sums that arise from contractual obligations. That is a reasonable proposition, but the Minister has clearly set his face against it.

§ The Solicitor-General for Scotland
Although the hon. Gentleman is not persuaded by the Government's approach to the matter—I appreciate that he was not a member of the Committee, so he may have missed the arguments—the Scottish Law Commission, not surprisingly, gave some attention to it when preparing its report. It said that we might need to find a satisfactory solution to the common law on compensation as it stands now, but it did not believe it appropriate to make such a change solely in the context of bankruptcy. It suggested that any change should become part of its examination of the law of obligations in Scotland. That is the best way to approach the matter.

§ Mr. Dewar
That may be so, and no doubt that is a persuasive argument for putting off anything. The trouble is that, as we know, the law of diligence has been under review for about a decade, and although the cathartic moment of production is almost upon us—I understand that from a written answer the other day—it has been a long and weary road. I am not entirely convinced by the 772 argument that we should leave this matter until the Scottish Law Commission considers the law of obligations, because its review may take a long time. My right hon. Friend was considering the specific problem of compensation and the privileges of the Crown, which are regulated to some extent by statute. If we need a change in the law now, I should have thought that it would be reasonable to try to strike the right balance.
I should outlive my welcome if I tried to rehearse the arguments that I did not hear in Committee. Therefore, I merely record my regret that Ministers have taken—I suppose predictably—a conservative view of the matter.