Legal Briefing

Expedited enforcement in Scotland (and beyond?)

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Scotland | 01 October 2011

In the current economic climate, perhaps more than ever before, cash is king. Companies supplying goods and services, their debt collection agents and solicitors on their behalf, are all intent on recovering overdue receivables as quickly and effectively as possible. With insolvency staring many debtors in the face, the creditor who is not fast is last – and, if insolvency intervenes, may recover nothing at all.

 SUMMARY DILIGENCE

Scots law has a unique remedy whereby parties to a contract can, within the terms of that contract, agree to expedited if not immediate enforcement of any financial or other obligation under the contract without the need for any preliminary court action. The process is commonly referred to as ‘consent to registration for execution’ or ‘consent to registration for summary diligence’.

Do not be confused or put off by the terminology of Scots law. ‘Diligence’ is no more than the generic term used in Scots law for the enforcement of a court decree (judgment) or ‘document of debt’ (more of which later). The reference to diligence or enforcement as ‘summary’ simply reflects the procedure or, more accurately, absence of procedure, which allows enforcement to take place without any prior court action. Under English law, the nearest equivalent procedure is probably that of a landlord’s distraint of a tenant’s goods and chattels. Summary diligence is far more than that.

REGISTRATION FOR EXECUTION

For summary diligence on any document of debt to be possible, the deed or document must contain a consent by the parties to that deed to registration for execution. Registration will typically take place in a Scottish public register known as the Books of Council and Session – essentially the court books of the Court of Session, Scotland’s superior civil court based in Edinburgh (whose judges are also known as the Lords of Council and Session). Registration is also possible in the books of any of the local sheriff courts situated around Scotland but, in practice, this rarely, if ever, happens. Registration in the Books of Council and Session is for two purposes – preservation and/or execution. Preservation is in perpetuity. The principal document is sent for registration with an official extract or extracts being returned for the use of the parties. Further extracts can be obtained should the need arise. Execution is optional and is to allow for summary diligence by the creditor in respect of any financial obligation contained within the deed. Typically, the wording within any deed which is to be registered will be no more than ‘the parties consent to registration for preservation and execution’ – a simple statement but with potentially serious consequences.

Prior to 1995, in order to be registrable in the Books of Council and Session, a deed had to be self-proving (the technical legal term being ‘probative’). However, the formal requirements are now governed by the Requirements of Writing (Scotland) Act 1995. In terms of s6 of that Act, it is not competent to register a document for preservation and execution unless, in terms of the Act, it is presumed to have been subscribed by the grantor. That presumption is readily satisfied – simply requiring the grantor’s signature bearing to have been witnessed (a single witness being sufficient).

As stated, the registration process involves the principal deed being sent to be registered for preservation and execution. An extract of the registered deed is then returned from the Registers of Scotland, bearing a docket confirming the date on which it had been presented for registration in the Books of Council and Session for preservation and execution and confirming such registration. A further docket is appended at the end of the extract stating ‘and the said Lord grants warrant for lawful execution hereon’. This is the effective grant of warrant or authority (from the Lords of Council and Session) to enforce the extract of the deed as if it were a decree of court (judgment).

SUMMARY DILIGENCE IN PRACTICE

When it comes to enforcement of any financial obligation by way of an extract of a deed registered for execution, the financial obligation itself must be either directly ascertainable from the deed itself or the mechanism for identifying that financial obligation must be so ascertainable. This is best explained by way of example.

Most commercial leases of heritable property in Scotland will contain a clause consenting to registration for preservation and execution. A lease is an important document and prudence dictates that it should be preserved by such registration. The tenant may fall into arrears and enforcement may become necessary. For that reason, registration for execution is important. The lease will spell out when the rent is due and what interest there may be on overdue instalments of rent. In order to commence enforcement, all that the landlord needs to do is to send an extract of the lease to officers of court along with a statement of the unpaid rent and accrued interest. Officers of court can then commence enforcement. This is without the time and expense of a court action and the risk that that action might be defended upon some spurious basis.

Bank or other personal guarantees by a company director or the like will typically contain a consent to registration for preservation and execution (some Scottish banks have deliberately omitted such clauses from their personal guarantees, presumably on the basis that they were perceived as being too draconian). A personal guarantee will either be for a fixed amount or perhaps for ‘all sums due and to become due’. In either instance the guarantee would be expected to include a clause to the effect that a certificate by the creditor or a named officer of the creditor should be conclusive as to the amount owing under the guarantee. For enforcement purposes, all that would be required would be for officers of court to be provided with the extract registered personal guarantee and a copy of the certificate of balance. For the avoidance of doubt, there is no requirement for the certificate itself to have been registered for preservation and execution.

BENEFITS FOR THE DEBTOR

Besides avoiding the time and expense associated with litigation and the risk of being drawn into contested proceedings, clauses consenting to registration for preservation and execution can also benefit a debtor. In many instances a creditor will not be happy about having an informal and unenforceable agreement allowing for payment by instalments, even where that is in writing. Possession of a decree of court is always going to be preferable to them. However, there will from time to time be debtors who are prepared to admit liability but do not wish the stigma of having an undefended court decree (default judgment) against them nor consequential risk of an adverse personal credit rating. These problems can be overcome by the creditor and debtor entering into a written agreement (referred to in Scotland as a ‘personal bond’) recording the debt, the terms of settlement and containing a clause consenting to registration for preservation and execution. Once signed and registered, the creditor is, in effect, in possession of a court decree for the sums owed. Conversely, the debtor is effectively subject to a court decree without there having been any court action and without any County Court judgment (or Scottish equivalent) recorded against them.

DISPUTES

If the debtor (and it is only going to be the debtor) disputes liability and cannot persuade the creditor that the sums sought by enforcement are not due in whole or in part, then at considerable expense the debtor has to try to protect their position. They must immediately apply to court, of necessity the Court of Session, seeking interim orders prohibiting further action by the creditor and suspension of such action as has already been taken. They may also need to apply to have some of the enforcement documentation set aside. Unless the debtor has a substantial justification for disputing liability, such as payment having been made, they will think twice about going down this route.

CREATING A SCOTTISH CONNECTION

Clearly there are material advantages to be obtained when contracting with a party in Scotland, or with assets in Scotland, who may end up owing money to you. For that reason consideration should always be given to inclusion of a clause consenting to registration for preservation and execution when contracting with such parties. However, there is also potential application in relation to contracts involving parties not based in Scotland but who may have assets in Scotland. There would be absolutely no reason why two parties based outside Scotland could not include within their contract documentation a clause to the effect that, so far as any enforcement of financial obligations under the contract might require to take place within the jurisdiction of the Scottish courts, parties consent to registration of the contract for preservation and execution. It would be prudent to make provision for certification of the balance due if that was not apparent on the face of the contract. This would allow for registration of the contract document in the Books of Council and Session thus allowing almost immediate enforcement. It should however be borne in mind that the principal contract would require to be so registered and that only an extract would ever be returned.

Outside the commercial sphere clauses consenting to registration for preservation and execution are commonplace in agreements between separating spouses. It is important that such a document should be registered for preservation with an extract being available for each party. The consent to execution allows for enforcement should the payer of any capital sum or maintenance fail to honour their obligations.

For the avoidance of doubt it is not competent to register for execution any deed which is regulated by the Consumer Credit Act 1974.

ENFORCEMENT OUTSIDE SCOTLAND

The Civil Jurisdiction and Judgments Act 1982, together with associated EU Treaties, makes provision for reciprocal recognition of judgments amongst different parts of the UK and amongst member states of the EU. Given that a deed registered for execution in the Books of Council and Session is equivalent to a decree of that court, there is in fact provision for the mutual recognition, both within the UK and within the EU, of what are referred to as ‘authentic instruments’. There may be wider doubts about the precise nature of authentic instruments but a deed registered for execution in the Books of Council and Session in Scotland should, after the appropriate procedure has been followed, produce an authentic instrument for registration and subsequent enforcement in England and Wales or elsewhere within the EU.

Developing that idea further, a debtor and creditor domiciled in England, for example, could enter into a Personal Bond containing a consent to registration for preservation and execution provided the bond was stated to be subject to Scots law. If the creditor then registered that in the Books of Council and Session it would become equivalent to a decree of the Scottish courts. In the event of default, the creditor could apply for an authenticated instrument, broadly the equivalent of a certificate of judgment, for registration in the English courts and enforcement within that jurisdiction. Not only should the parties be satisfied at having saved time and expense, but the Ministry of Justice should be happy with a potential case having been removed from the court system!

Provisions relating to registration for preservation and execution in Scotland are currently little known outside the Scottish legal profession. Hopefully this article will change that. Use of the procedure has historically been largely restricted to enforcement within the Scottish jurisdiction. There is however clear potential for that to change with imaginative development by those anxious to avoid the time, expense and risks of litigation.