Diligence

Question 1

Mitchells v Fergusson

Answer 1

1. A sheriff officer attempted to attach household items in a property, but it was shown that the items belonged to another party
2. The court held that diligence must only be directed at assets belonging to the debtor

Question 2

Burnett’s Trustee v Grainger

Answer 2

1. Mr Burnett purchased a house but failed to register the disposition
2. When he became bankrupt, the trustee was not entitled to the property because Mr Burnett had not completed his real right
3. The case demonstrates that registration is essential to acquiring a real right

Question 3

Heritable Reversionary Co Ltd v Millar

Answer 3

1. The court held that trust property could not be attached by a trustee in sequestration as it was not part of the bankrupt’s estate

Question 4

McDonald v Mize

Answer 4

1. The arrestment must be laid in the hands of the party who would be the defender in an action for payment of the sum being arrested

Question 5

McKenzie v Edinburgh City Council

Answer 5

1. Bank accounts containing only social security benefits are not arrestable
2. The sheriff’s reasoning was questioned by MacPherson and Sweeney in their critique

Question 6

Morrison v Integer Systems

Answer 6

1. Arrestment provides the arrester with a preference in any future sequestration of the debtor’s estate, subject to rules such as the 60-day rule

Question 7

Slater v Grampian RC

Answer 7

1. Where the employer is also the creditor, it is competent to arrest in their own hands

Question 8

Playfair Investments Ltd v McElvogue

Answer 8

1. This case involved an inhibition raised by Playfair Investments Ltd against Mr McElvogue, and a subsequent disposition of property executed by McElvogue in favour of a third party
2. The key legal issue was whether this disposition, granted after the inhibition, could be reduced as a future voluntary act, despite the underlying missives (contract of sale) being concluded before the inhibition took effect
3. The court held that the relevant act for the purposes of inhibition was the granting of the disposition, not the earlier missives
4. Therefore, the disposition was a “future act”, and since it was made without onerous consideration to a connected party, it was also deemed voluntary
5. As a result, the court ruled that the disposition could be reduced under the Bankruptcy (Scotland) Act 1985, reinforcing that missives alone do not protect a transfer from challenge where an inhibition is in place before the disposition is granted

Question 9

Hull v Campbell

Answer 9

1. The case involved a long-standing debt of £9,600 owed by Campbell to Hull
2. Hull had obtained a decree against Campbell in 1992, and by 1998, Campbell had failed to make any payments
3. Hull initiated adjudication proceedings to enforce the debt, seeking to have Campbell’s property transferred to him
4. The central issue was whether Hull, as the adjudger, was entitled to retain the property if its value significantly exceeded the debt owed
5. The court examined whether such a windfall benefit to the adjudger was permissible under the law
6. The Court of Session held that the adjudication process did not entitle the adjudger to a windfall
7. The court emphasised that the purpose of adjudication is to satisfy the debt owed, not to confer an unjust enrichment upon the creditor
8. Therefore, any excess value derived from the adjudicated property beyond the debt owed should be accounted for, ensuring fairness and preventing undue benefit to the adjudger
9. It underscores the principle that legal remedies should not result in unjust enrichment and that excess value obtained through enforcement actions should be appropriately managed

Question 10

Whyte 1984

Answer 10

1. Imprisonment for civil debt has been largely abolished
2. It cannot be used to enforce other civil debts, including divorce-related financial orders

Question 11

Karl Construction Ltd v Palisade Properties plc

Answer 11

1. Karl Construction Ltd initiated legal proceedings against Palisade Properties plc, seeking payment for construction work
2. Upon raising the action, Karl Construction obtained an inhibition on the dependence, a form of diligence that restricts a debtor from disposing of heritable property during ongoing litigation
3. Palisade Properties challenged this inhibition, presenting three primary arguments
4. They asserted that the automatic granting of inhibition without specific justification infringed upon their rights under Article 1 of the First Protocol to the European Convention on Human Rights, which protects the peaceful enjoyment of possessions
5. Lord Drummond Young upheld the challenge, concluding that inhibition on the dependence should not be granted automatically upon the initiation of an action
6. Courts must be satisfied that the pursuer has a prima facie case and that there is a specific justification for the inhibition, such as a substantial risk of the defender’s insolvency or asset dissipation
7. The existing practice of automatic inhibition without judicial scrutiny was incompatible with the defender’s rights under the European Convention on Human Rights
8. This decision marked a significant shift in Scottish civil procedure, emphasising the need for judicial oversight and justification when granting diligence on the dependence, thereby balancing creditors’ interests with debtors’ rights

Question 12

Advocate General for Scotland v Taylor

Answer 12

1. The Advocate General, representing the Inland Revenue, sought a warrant for inhibition on the dependence against Maureen Taylor to secure a tax debt
2. The application was initially refused by the Lord Ordinary, who relied on the precedent set in Karl Construction Ltd v Palisade Properties plc, asserting that a specific need for such diligence must be demonstrated
3. The matter was escalated to the Inner House of the Court of Session to assess the compatibility of diligence on the dependence with the European Convention on Human Rights (ECHR), particularly Article 6 (right to a fair trial) and Article 1 of Protocol 1 (protection of property)
4. The court concluded that the granting of diligence on the dependence does not violate Article 6(1), as it does not determine the parties’ civil rights and obligations
5. To comply with Article 1 of Protocol 1, the process must involve judicial consideration
6. This means a judge must assess the application, but a full hearing is not mandatory
7. This decision clarified that while diligence on the dependence remains a valid legal tool, its application must involve judicial oversight to ensure compliance with human rights standards

Question 13

Beaghmor Property Ltd v Station Properties

Answer 13

1. In this case, Beaghmor Property Ltd sought damages from Station Properties Ltd for breach of a lock-out agreement concerning the sale of a development site
2. To secure their claim, Beaghmor obtained an inhibition on the dependence, a legal measure preventing the defender from disposing of heritable property during ongoing litigation
3. Station Properties applied to recall the inhibition, arguing that Beaghmor lacked a prima facie case and that the inhibition was unreasonable
4. Lord Hodge, presiding over the matter, held that Beaghmor had established a prima facie case for damages based on the alleged breach
5. There was a real and substantial risk that enforcement of any decree would be prejudiced due to Station Properties’ financial position
6. The use of inhibition was reasonable in the circumstances, despite its limited preferential effect over other creditors
7. Consequently, the court refused to recall the inhibition, reinforcing that such diligence remains a vital tool for creditors, provided they meet the necessary legal criteria

Question 14

Mackin v Mackin

Answer 14

1. The debtor sought to prevent sequestration by registering for the Debt Arrangement Scheme (DAS)
2. However, the court examined the provisions of the Bankruptcy (Scotland) Act 1985 and the DAS Regulations, concluding that mere registration for DAS did not constitute a legal impediment to sequestration
3. Sheriff Deutsch emphasised that, under section 12(2) of the 1985 Act, the court was bound to grant a warrant to cite unless there was a clear legal impediment, such as the debt being satisfied or procedural incompetency
4. The debtor’s attempt to use DAS registration as a shield against sequestration was insufficient, as it did not meet the threshold of an exceptional circumstance that would prevent the granting of the warrant
5. This case underscores the principle that while DAS provides a mechanism for debtors to manage their debts, it does not automatically preclude creditors from pursuing sequestration
6. The court’s decision highlights the limited circumstances under which sequestration can be halted, reinforcing the importance of clear legal grounds when opposing such proceedings

Question 15

MacMillan v T Leith Developments Ltd

Answer 15

1. MacMillan initiated legal proceedings against T Leith Developments Ltd in 2006 for breach of contract related to defective construction work
2. They obtained an inhibition on the dependence, which was registered on 25 September 2006
3. A decree by default was granted in their favour in November 2010
4. Subsequently, on 18 February 2011, Clydesdale Bank appointed receivers over T Leith Developments Ltd under a floating charge granted in 2000
5. The central legal issue was whether the inhibition constituted “effectually executed diligence” under sections 55(3)(a) and 60(1)(b) of the Insolvency Act 1986, thereby granting MacMillan priority over the bank in the distribution of the company’s assets during receivership
6. The Inner House of the Court of Session held that the inhibition did qualify as effectually executed diligence, overturning the previous decision in Lord Advocate v Royal Bank of Scotland (1977 SC 155), which had excluded certain diligences from this category
7. This ruling clarified that inhibitions could affect the distribution of assets in receivership, ensuring that creditors who had taken such measures were afforded appropriate priority