Reform Update - diligence on the dependence

As practitioners will be aware there has been some uncertainty in recent years as to the circumstances in which the court will grant an order for diligence on the dependence: an order which enables a pursuer to a court action seeking decree for payment to take steps to protect assets which might be available to meet the judgement awarded at the end of the case.

14th December 2006

As practitioners will be aware there has been some uncertainty in recent years as to the circumstances in which the court will grant an order for diligence on the dependence: an order which enables a pursuer to a court action seeking decree for payment to take steps to protect assets which might be available to meet the judgement awarded at the end of the case.

The two types of diligence that can be carried out on the dependence of a court action are arrestment (which freezes assets held by third parties) and inhibition (which prevents the sale of land). Until fairly recently a warrant from the court authorising diligence on the dependence was granted by the court with little, if any, scrutiny of the merits of the action or the reasons why such a protective order was sought. The order was granted almost as an administrative exercise and often without the defender having any knowledge of the order sought. The first the defender would often learn of the warrant was when he was contacted to be advised that, for example, his bank account had been frozen following service of an arrestment on the dependence.

Since 2002 a few cases have cast doubt on this approach by the courts following concerns as to whether the procedure was compatible with the rights protected by the European Convention of Human Rights; there has been a degree of uncertainty ever since.

The Bill proposes a number of reforms in this area which :

  • Streamline the procedure for obtaining a warrant from the court and
  • Clarify the circumstances in which a warrant will be granted by the court.

At the present time the sheriff court has authority to grant a warrant to arrest on the dependence of a court action but in order to inhibit, a separate application needs to be made to the Court of Session. The bill proposes that the sheriff court will be able to grant a warrant both to arrest and inhibit on the dependence of an action for payment. This will streamline the procedure and reduce costs.

The bill provides that an application for a warrant for diligence on the dependence of an action can be made at any time during the currency of a case (although many pursuers will wish to seek an order at the time the action is first presented to court and prior to service of the writ on the defender). Unless the court is satisfied that there is some particular urgency the application will be considered at a hearing and the defender will receive intimation of the hearing and will be entitled to attend. The bill provides that the court may approve an application only where it is satisfied:

  • That the creditor bringing the action has a prima facie case
  • That there is a real or substantial risk that enforcement of a decree would be prejudiced because
    • the defender is insolvent or on the verge of insolvency or
    • there is a  likelihood of assets being disposed of and
  • That it is reasonable in all the circumstances to grant the warrant.

For insolvency practitioners contemplating litigation it will be necessary to give careful consideration as to whether an application for diligence on the dependence should be made and, if so, to provide the solicitor who will have to attend the hearing with sufficient information to satisfy the court that the warrant should be granted. While there will be some cost saving in not having to make a separate application to the Court of Session to inhibit on the dependence of the action, that will be off set by the costs of a hearing in every case and practitioners should be alive to the risk of an adverse award of costs in the event that the application is refused at a hearing where the defender is represented.