Scottish Government

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Scottish Law Commission Report on Diligence on the Dependence and Admiralty Arrestments

31/03/1998

ISSUED BY THE SCOTTISH LAW COMMISSION

The Scottish Law Commission today publishes a report on Diligence on the Dependence and Admiralty Arrestments.

The principal recommendation of the report is that, in court actions for payment, Court of Session judges and sheriffs should directly control the grant of warrants for diligence on the dependence.

Diligence on the dependence of an action refers to the provisional measures which may be taken against the property of a defender, while the court action is ongoing, in order to secure the pursuer's claim. At present, only two types of diligence can be used on the dependence, namely, arrestment and inhibition. An arrestment attaches funds or other moveable property belonging to the defender in the possession of a third party. An inhibition prohibits a defender from transacting with his heritable property (land or buildings) to the inhibitor's prejudice and gives the inhibitor a special type of preference on the debtor's insolvency.

Under the present law, warrants for diligence on the dependence are routinely granted to litigants on request. The warrants can then be unfairly used to pressurise defenders into paying or compromising disputed claims.

The present law does not comply with internationally accepted principles of procedural justice, causes undue hardship to defenders and should be reformed. The absence of judicial control over the grant of warrants means that diligences on the dependence are often used in inappropriate cases. They can be used for example in situations where they are completely unnecessary because there is no real or substantial danger that, in the event of decree being granted, the pursuer will not be paid. Diligence on the dependence can put undue pressure on a defender to settle a claim which is unfounded. An arrestment of a bank account on the dependence can interrupt the defender's cash flow and prevent him from paying his employees' wages and his business debts when they fall due, and generally disrupt the course of his business. It can harm his commercial reputation and credit since third parties have no means of knowing whether the arrestment or inhibition is being used unjustifiably to secure an unfounded claim. Diligence on the dependence can also be used to embarrass the defender rather than to secure the pursuer's claim.

Research suggests that the absence of judicial control over the grant of warrant for diligence on the dependence makes Scots law unique among the legal systems of Europe, North America and the Commonwealth.

Though the defender can apply for recall of diligence on the dependence, normally he must find security for the pursuer's claim which merely shifts the burden. Moreover, recall may come too late to prevent interruption of cash flow and damage to commercial credit.

The Commission recommends that warrant for diligence on the dependence should always be granted by a judge. It should not be routinely available but only where its use is justified by special circumstances. In particular, there would have to be a real risk that the enforcement of any decree against the defender may be defeated by his becoming insolvent or by dissipating or concealing his assets. Generally it must be reasonable to grant the warrant having regard to the circumstances, including the pursuer's prospects of success in the action.

When granting warrant, the judge should have powers to restrict the amount of the funds arrested to a reasonable amount, and to restrict the property affected by an inhibition to specified land or buildings, and generally power to limit the hardship on the defender to the minimum necessary to secure the pursuer's claim. For example, it might be clear that to arrest a defender company's bank accounts would cause undue disruption of its business, whereas other attachable assets could be arrested with less hardhsip to the defender.

As a further safeguard for defenders, the Commission recommends that a pursuer should be liable to the defender or third party in damages for loss caused by wrongful or unjustified use of diligence on the dependence and that the court should be able to require the pursuer to provide security against such loss.

The Commission also recommends that the sheriff should have power to grant warrants for inhibition on the dependence of sheriff court actions to complement his power to authorised arrestment on the dependence. It would no longer be necessary for litigants in the sheriff court to make troublesome applications to the Court of Session for such warrants.

Under the present law, moveables in the defender's possession cannot be attached on the dependence. (Generally, arrestment only attaches moveables in someone else's possession.) To fill this gap, the Commission recommends the introduction of a new form of diligence on the dependence to be known as interim attachment. Moveables in the defender's possession specified by the court in its discretion would be attached during the action and, if the pursuer obtains decree, for a period thereafter to allow the attachment to be followed up by a poinding.

The Commission emphasises that an interim attachment could not affect any goods situated in dwellinghouses (except vehicles in garages) nor would it entail a visit by a sheriff officer to inventory and value goods on the debtor's premises. It would enable vehicles and commercial goods (such as aircraft and business equipment) in the defender's possession to be attached but stock-in-trade would be exempt.

The Commission's recommendations for introducing judicial control of diligence on the dependence and other safeguards for defenders would extend to arrestments of ships and their cargo in so far as this is appropriate.

The report also makes useful recommendations to restate the old and new statute law on arrestment of ships in a more intelligible and coherent form.

BACKGROUND

1. The Scottish Law Commission was set up in 1965 to promote the reform of the law of Scotland. The Chairman is the Honourable Lord Gill. The other Commissioners are:

Dr Eric M Clive, Mr Patrick S Hodge QC, Professor Kenneth G C Reid and Mr Niall R Whitty.

2. Copies of the report can be collected by the media from the Scottish Law Commission, 140 Causewayside, Edinburgh, EH9 1PR (Telephone: 0131 668 2131).

3. Further information may be obtained from Mrs Gillian Swanson at the Commission's offices.

News Release: 0630/98
March 31, 1998