SCOTTISH LAW COMMISSION (Scot Law Com No 183) abcdefgh Report on Diligence Laid before the Scottish Parliament by the Scottish Ministers under section 3(2) of the Law Commissions Act 1965 May 2001 SE/2001/107 EDINBURGH: The Stationery Office £20.70 0 10 888031 1 ii The Scottish Law Commission was set up by section 2 of the Law Commissions Act 19651 for the purpose of promoting the reform of the law of Scotland. The Commissioners are: The Honourable Lord Gill, Chairman Patrick S Hodge, QC Professor Gerard Maher Professor Kenneth G C Reid Professor Joseph M Thomson The Secretary of the Commission is Miss Jane L McLeod. Its offices are at 140 Causewayside, Edinburgh EH9 1PR The text of this Report is available on the Internet at: http:/ /www.scotlawcom.gov.uk 1 Amended by the Scotland Act 1998 (Consequential Modifications) (No 2) Order 1999 (S.I. 1999/1820). iii iv SCOTTISH LAW COMMISSION Item No 7 of our Sixth Programme of Law Reform Diligence To: Jim Wallace Esq QC MSP, Deputy First Minister and Minister for Justice. We have the honour to submit to the Scottish Ministers our Report on Diligence. (Signed) BRIAN GILL, Chairman PATRICK S HODGE GERARD MAHER KENNETH G C REID JOSEPH M THOMSON JANE L MCLEOD, Secretary 23 April 2001 v vi Contents Paragraph Page PART 1 - INTRODUCTION 1 Outline of our proposals 1.3 1 Summary warrants 1.10 4 Legislative competence 1.11 5 European Convention on Human Rights 1.12 5 Acknowledgements 1.16 6 PART 2 - ABOLITION OF ADJUDICATION FOR 7 DEBT Outline of existing procedure 2.2 7 Defects of the diligence 2.3 7 Unduly long legal period for redemption 2.4 8 No provision for judicial sale 2.5 8 Apparent absence of obligation on creditor to account to debtor for value of property on foreclosure 2.6 8 Disproportion between value of adjudged subjects and amount of debt 2.7 9 No provision for protecting interim possession or home of debtor or his family 2.8 9 Unnecessarily cumbersome and expensive procedure 2.9 9 Obscurity of the law 2.10 10 Summary of main criticisms 2.11 10 Consultation 2.12 10 Recommendation 2.14 11 Re-naming the Register of Inhibitions and Adjudications 2.15 11 Recommendation 2.16 11 PART 3 - INTRODUCTION OF LAND ATTACHMENT 12 AND RELATED ISSUES A. PRELIMINARY 12 (1) Overview 3.1 12 (2) Introduction of land attachment 3.3 12 Arguments against the introduction of land attachment 3.4 13 Causing debtors undue economic hardship and personal distress 3.5 13 Expenses of land attachment increase debt unduly 3.8 14 Land attachments unnecessary 3.10 14 Unintended consequence of increasing use of Sequestrations 3.13 15 Deleterious impact on conveyancing practice 3.15 16 Increasing homelessness 3.16 16 The arguments in favour of introducing land attachment 3.17 17 Principle of universal attachability 3.18 17 Application of land attachment to dwellings 3.21 19 vii Contents (cont'd) Paragraph Page Alternative proposal for forced assignation of debt to approved lender and compelled standard security 3.29 22 Our recommendation 3.31 22 Recommendation 3.32 23 B. MAIN FEATURES OF NEW DILIGENCE OF LAND ATTACHMENT 23 (1) Outline of main steps in land attachment 3.33 23 DIAGRAM OF MAIN STEPS IN LAND ATTACHMENT 26 (2) Warrant for land attachment 3.34 27 No land attachment on the dependence or in security 3.38 28 Recommendation 3.39 28 (3) Land attachable 3.40 29 Recommendation 3.50 32 (4) Notice of land attachment 3.51 33 Content of notice of land attachment 3.52 33 Rights conferred on a creditor by registration of a notice of land attachment 3.54 33 (a) mandatory period of litigiosity 3.55 33 (b) subordinate real right in security 3.58 34 The mechanics of registration 3.61 35 Service of copy of notice of land attachment 3.64 36 Recommendation 3.65 36 (5) Incidental effects of land attachment 3.66 37 (a) Land attachment not to convert accrued interest into interest-bearing sum 3.66 37 Recommendation 3.67 37 (b) Apparent insolvency 3.68 38 Recommendation 3.69 38 (c) Vesting tantum et tale 3.70 38 Recommendation 3.72 39 (d) Character of debt as heritable or moveable 3.73 39 Recommendation 3.74 39 (6) Debtor protection and protection of occupiers against homelessness 3.75 39 Overview 3.75 39 Recommended safeguards for debtors 3.77 41 (a) Time to pay directions and orders under the Debtors (Scotland) Act 1987, Part I 3.77 41 Recommendation 3.84 43 (b) Qualifying lower limit on size of debt enforceable by land attachment 3.85 43 Stage of diligence when qualifying amount applicable 3.91 45 The amount of the qualifying limit 3.92 45 Exception to the lower limit 3.93 46 Sequestration incompetent under rules of private international law 3.94 46 Recommendation 3.95 46 viii Contents (cont'd) Paragraph Page (c) Refusing warrant of sale if proceeds unlikely to exceed expenses of the diligence (the "not worth it" test) 3.96 46 Recommendation 3.99 48 (d) Refusing or postponing warrant of sale on ground of undue harshness 3.100 48 Recommendation 3.101 49 (e) Expenses of land attachment recoverable from that attachment only 3.102 49 (f) Application for warrant to sell the debtor's principal dwellinghouse 3.103 49 Scope of a dwellinghouse exemption 3.104 49 Recommendation 3.109 51 Measures of debtor protection for sale of an attached "principal dwelling" 3.110 51 Repossession of leased property 3.111 52 Bankruptcy 3.114 53 Enforcing a standard security 3.115 53 Extension of debtor protection in bankruptcy 3.123 56 Recommendation 3.124 56 Other possible safeguards for debtors considered and rejected 3.125 57 (g) General judicial discretion to grant warrant to sell attached land 3.125 57 (h) The "disproportion" test 3.127 57 (i) Limits on expenses chargeable against the debtor 3.129 58 (7) Protection of purchaser under missives from loss of bargain 3.130 58 Recommendation 3.132 59 (8) Application for warrant to sell attached land 3.133 60 Initial stages of application 3.133 60 Recommendation 3.138 62 The hearing of the application for warrant of sale 3.139 62 (i) the debtor 3.142 63 (ii) occupiers of a principal dwellinghouse 3.143 63 (iii) holders of prior securities 3.144 63 (iv) purchasers under existing missives for sale of the land 3.145 63 (v) co-owners 3.146 63 Orders granted by sheriff 3.147 64 Recommendation 3.150 65 (9) Possession and maintenance of attached land 3.151 66 Recommendation 3.156 67 (10) The sale 3.157 68 Recommendation 3.160 68 (11) Disburdenment of purchaser's title and ranking on proceeds of sale 3.161 69 Recommendation 3.164 69 ix Contents (cont'd) Paragraph Page (12) The report of sale 3.165 70 Recommendation 3.169 71 (13) Foreclosure 3.170 71 Recommendation 3.173 72 (14) Payments to account and diligence expenses 3.174 73 Recommendation 3.176 73 Ascription of payments to account during land attachment 3.177 74 Recommendation 3.178 74 (15) Transmission and termination of land attachments 3.179 74 Assignation of debt 3.179 74 Recommendation 3.180 74 Acquisition by creditor's assignee or successor of creditor's right to use land attachment 3.181 74 Recommendation 3.183 75 Duration and extension of land attachment 3.184 75 Recommendation 3.185 75 Termination of attachment by payment 3.186 76 Recommendation 3.187 76 Discharge, recall and restriction 3.188 76 Recommendation 3.189 76 (16) Debtor's death 3.190 77 Debtor's death before registration and service of land 3.190 77 attachment Recommendation 3.195 78 Debtor's death after registration and service of land 3.196 79 attachment Recommendation 3.197 79 (17) Land attachment of pro indiviso share of common property 3.198 79 Recommendation 3.202 81 (18) Effect of sequestration and liquidation on land attachment 3.203 81 Vesting of estate 3.204 82 Vesting of estate in permanent trustee 3.204 82 Recommendation 3.207 82 Liquidation not a deemed adjudication for debt for vesting purposes 3.208 83 Prohibition of further diligence 3.211 83 Stoppage of land attachment by sequestration, vesting in the trustee and preferences of attaching creditors 3.211 83 Recommendation 3.216 85 Stoppage of land attachment by winding up 3.217 85 Recommendation 3.220 86 x Contents (cont'd) Paragraph Page PART 4 - ATTACHMENT ORDERS 88 A. INTRODUCTION 88 Replacement of adjudication as a residual diligence 4.1 88 Recommendation 4.6 89 Debtor protection 4.7 89 B. SCOPE OF ATTACHMENT ORDERS 90 Introduction and overview 4.8 90 (a) Property transferable 4.9 90 General 4.9 90 Recommendation 4.14 93 Dwellinghouses 4.15 93 Recommendation 4.16 94 (b) Not attachable by other diligence 4.17 94 Recommendation 4.17 94 (c) Exempt from diligence 4.18 94 Recommendation 4.18 95 C. BOUNDARIES BETWEEN ATTACHMENT ORDERS AND OTHER DILIGENCES 95 Introduction 4.19 95 Land attachment and attachment orders 4.20 95 Arrestment and attachment orders 4.26 97 (a) Adjudgeable property to be arrestable 4.27 97 Recommendation 4.32 98 (b) Arrestment or attachment order? 4.33 99 Annuities and liferents 4.34 99 Recommendation 4.36 100 Licences and contractual rights to acquire property 4.37 100 Rights under trusts 4.39 101 D.