garnishment of bank accounts - uni-heidelberg.de reports/uk scotland... · 1 study jai a3/02/2002...
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Study JAI A3/02/2002
Garnishment of bank accounts Scottish Report
Dr. Helena Raulus, University of Aberdeen
1. Competence of the enforcement organs
2. The procedure for obtaining the garnishment order
3. Commencement of the garnishment order
4. Object of the garnishment order
5. Effect of the garnishment order
6. The legal status of the garnishee
7. Debtor’s protection (immunities)
8. The collection of the claim
9. Information in law and in fact
10. Cross-border garnishment of bank accounts
1. Competence of the enforcement organs
1.1. Which enforcement organ is competent for the garnishment of bank accounts?
In Scotland only courts, Sheriff Court or Court of Session can decide on arresting of a bank account. (Please note, under Scots law the term garnishment does not appear, rather the terms to be used here are arrestment and furthcoming.)
Once a court has decided on arrestment of a bank account, if this is Court of Session, then the order needs to be executed by appointed messenger-at-arms except in those cases where there is no messenger-at-arms in a district, then a Sheriff officer who has been duly authorised to practices there has all the powers of the messengers-at-arms with regard to the diligence of any decree, warrant or order (Execution of Diligence (Scotland) Act 1926, section 1). If the decree emanates from a Sheriff court, it will be executed by a Sheriff officer (Debtors (Scotland) Act 1987, section 91(1)(a) (b) (2)).
1.1.1. What legal (educational) qualifications does the enforcement officer have?
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Sheriff officers and messengers-at-arms can directly enter into profession if they have 5 Standard Grades including English and Mathematics. Training is on-the-job and usually lasts for three years. The applicants need to be over 20 years old.
1.1.2. What is the relationship between the enforcement organ and the enforcement court (Control - to legal remedies of the involved parties see questions 2.5. + 2.7.)?
The courts pronounce the decree whereby the debt has been asserted. After that the sheriff officer or messenger-at-arms performs the arrestment. However, for the action to be complete and the funds to be released, a separate action for forthcoming needs to be raised in the court.
1.2. International competence / jurisdiction1
1.2.1. Does the jurisdiction depend on the domicile of the garnishee?
No, according to Civil Jurisdiction and Judgments Act 1982, Schedule 8, section 1 the main ground of jurisdiction is that of the defendant in Scotland. This Act has transposed the rules of the Brussels Convention to be applied also in cases of arrestment of bank accounts for the UK and Community domiciliaries, see below, section 1.2.3.
1.2.1.1. If the account is kept at a branch office (succursale) - does the enforcement organ at the place of the branch office have jurisdiction or the one at the place of the head office / holding company?
Under Scots law the branch where the account is held is of primary importance.
It was held in Steward v. The Royal Bank of Scotland plc (1994) SLT (Sh. Ct.) 27, that where a defender’s account is held at an English branch of the bank, but the pursuer serves an arrestment on a Scottish branch of that bank, the arrestment will not “catch” the defender’s account. This was also held in Steward v. The Royal Bank of Scotland (1994) SLT (Sh. Ct.) 27.
1.2.1.2. Which enforcement organ has jurisdiction if the account is kept at a legally independent subsidiary / branch office?
1 To the extent necessary, please answer the following questions both with regard to issues of international and local jurisdiction.
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The Court of Session can grant enforcement order throughout Scotland, otherwise it is the court of the place of domicile of the defendant which can authorise the messenger-at-arms or sheriff officer to act.
1.2.2. Does jurisdiction depend on the situs of the assets of the garnishee?
Yes, under the common law rules but only in relation to persons not domiciled in the Community area. See below, section 1.2.3
1.2.2.1. Is jurisdiction limited to the assets located in the territory of the
enforcement organ ?
Yes, this was stated for example in Leggat Brothers v Gray, 1908 SC 67.
1.2.3. Does jurisdiction depend on the domicile of the debtor?
Yes. The jurisdiction is granted on the basis of domicile for the intra-EU defenders, Civil Jurisdiction and Judgments Act, 1982, Schedule 8, Section 1. Even though Section 2(8)(a) provides that the domicile of the defendant is only relevant in the case of defendants domiciled in the UK, this has been extended to all persons domiciled in the Community areas through the use of Article 3 of the Brussels Convention (Maxwell Report on the application of the Brussels Convention, paragraph 13.164).
For persons not domiciled in the Community area jurisdiction is to be found where “any moveable property belonging to him has been arrested”. Therefore, if a person has a bank account in Scotland with funds, this can be arrested by the Scottish courts.
Additionally though forum non conveniens applies so that a Scottish court can decline jurisdiction on the basis that it finds
1.2.3.1. Is jurisdiction limited to the assets located in the territory of the
enforcement organ ?
Yes, as above. The enforcement organ can only enforce judgements in relation to the assets found in the jurisdiction.
1.2.4. Are the jurisdictions of the enforcement organ and the court responsible for decision in the substantive action identical?
Yes.
1.2.5. Does the jurisdiction of the enforcement organ depend on the jurisdiction of the court of the action against the garnishee?
Yes, the enforcement organ cannot proceed without a court judgment
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1.2.6. Are there special jurisdictional grounds for safeguard enforcement?2
No.
2. The procedure for obtaining the garnishment order
2.1. When requesting an enforcement action, what conditions does the creditor have to satisfy:
2.1.1. General conditions for enforcement?
The creditor needs to obtain a decree from a court. In the sheriff court, the pursuer will ask the warrant to be made in the initial writ in ordinary causes, whereas in summary causes the pursuer can claim for arrestment with a separate form. Furthermore, in the Court of Session, the pursuer can appeal for arrestment of debtor’s funds.
As with provisional measures, arrestment on dependence, the decree needs to be for payment of money.
2.1.2. Special conditions for enforcement (periods)?
If the pursuer starts the arrestment prior service of the writ, in this case the pursuer has either 20 or 45 days to serve the writ to the defendant.
2.1.3. Which documents does the creditor have to submit?
None.
2.1.4. Is there a prescribed or often-used form? (If so, please attach the form)
This is the Court of Session form:
Form 16.15-E
Form of schedule of arrestment in execution
SCHEDULE OF ARRESTMENT IN EXECUTION
Date: (date of execution)
To: (name and address of arrestee)
2 Please illustrate the special regulations in the order of questions 1.2.1. – 1.2.5.
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IN HER MAJESTY’S NAME AND AUTHORITY, I, (name), Messenger-at-Arms, by virtue of an extract decree of the Court of Session dated (date) [or an extract of a document (describe deed) registered for execution on (date) in the Books of Council and Session] and extracted on (date) obtained at the instance of (name of party arresting) arrest in your hands (i) the sum of (amount), more or less, due by you to (common debtor’s name and designation) or to any other person on his [or her] [or its] [or their] behalf; and (ii) all moveable things in your hands and belonging or pertaining to the (common debtor’s name), to remain in your hands under arrestment until the (name of party arresting) has been paid (amount) in terms of the extract decree [or extract of the document registered in the Books of Council and Session].
This I do in the presence of (name, occupation and address of witness)
(Signed)
Messenger-at-Arms
(Address)
(Signed)
Witness
NOTE
This schedule arrests in your hands (i) debts due by you to (common debtor’s name); and (ii) goods and other moveables held by you for him. You should not pay any debts to him or hand over any goods or other moveables to him without taking legal advice.
This schedule may be used to arrest a ship or its cargo. If it is, you should consult your legal adviser about the effect of it.
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IF YOU ARE UNCERTAIN ABOUT THE EFFECT OF THIS DOCUMENT, you should consult a solicitor, Citizens Advice Bureau or other local advice agency or adviser immediately.
Whereas in the Sheriff Court the warrant for arrestment is included in the original writ (Sheriff Court Ordinary Cause Rules, 1993 SI 1953, paragraph 3.4).
Sheriff court Summary Cause form (Act of Sederunt (Summary Cause Rules) 2002, SI 132)
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2.2. How precisely must the account to be seized be identified?
It is a common practice to serve “fishing” arrestments on major clearing banks (Stair, The Laws of Scotland, Memorial Encyclopaedia, paragraph 272). Scottish Law Commission’s Report has noted that of the total number of arrestments served on the four main Scottish clearing banks, those successful in attaching any funds varies between 6% and 35%. Up to 65% of arrestments served had then been found to have no customer connection, where the debtor did not hold an account at all with the bank in question (information supplied by Scottish clearing banks).
2.2.1. Is the general indication of the debtor’s and his/her bank´s name sufficient?
Yes, according to this practice, it is not necessary to even identify the correct bank originally.
2.2.1.1. If so, are search orders permissible?
This is the type of “fishing” arrestment. The problem for the banks is that if they fail to find the funds of the common debtor, then for them arises the liability of arrestee – they become responsible for the arrester for the debt.
2.2.2. Does the bank’s branch office where the account is kept have to be indicated, and potentially (when there are several bank accounts) also the precise account number? Is another description sufficient?
No, it is not necessary.
2.2.2.1. Does the creditor have to set out in detail the legal basis, parties, amount, etc.3?
No, the arrestment first attaches the whole account balance of the debtor, see below point 4.2. The arrester will have a court judgment first on the debt and then only he/she can continue for action of furthcoming. Prior to this it is possible for the courts to arrest the bank account on basis of a good action.
2.3. What investigations does the enforcement organ generally undertake:
2.3.1. With regard to the conditions of enforcement?
None, this is for the courts when granting warrants.
2.3.2. With regard to the claim to be garnished?
3 The German case law and legal literature describes this as the "principle of enforcement law certainty" (vollstreckungsrechtlicher Bestimmtheitsgrundsatz).
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2.4. Can the creditor make amendments to the enforcement request (e.g. provide additional proofs etc.)?
This is to be considered within the court.
2.4. Does the debtor have a right of hearing before enforcement action is taken?
No, arrestment can be granted before the action has been started. Only when the case is being answered at the court the debtor has the right to be heard.
2.5.1. If not, are exceptions made with special accounts (e.g. salary accounts)?
No, see below point 7.1
2.5.2. Can the debtor request protective orders before enforcement actions begin / possibly deposit a protection writing?
Yes, the debtor can offer security or deposit for the creditor and test the arrestment. However, it will be up to the court to decide whether the security is sufficient or whether the arrestment will hold (Marie Brizzard et Roger International v. William Grant & Sons Ltd. (2002) SLT 1357). The courts will decide on factual basis whether the security is sufficient for the debt.
2.6. In what time frame is the enforcement action normally effected?
2.6. Which legal remedies can the creditor request if the application is rejected?
When served with a writ or after a court action, arrestment is automatic. Therefore there are no specific remedies for the creditor. Arrestment only falls if the debtor has no funds where arrestment can be attached.
2.7.1. Who decides on the remedy?
2.7.2. Must the debtor be heard?
2.8. Must the creditor advance the costs4?
2.8.1. If so, to what amount?
2.8.2. How are the costs remunerated?
4 Regarding the height of the costs see 9.6.
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2.9. Do different regulations apply if the creditor applies solely for security measures?5 If so, please provide answers to questions 2.1-2.8 regarding these regulations.
It is possible for the creditor to apply for arrestment in security. This is a form of diligence where the creditor holds a document of debt which has not matured yet, i.e. it is future or contingent debt. Fearing the debtor’s insolvency the creditor can request arrestment in security and the debtor will have to put his assets to the hands of the third parties. This is to be used only in “special circumstances”, such as where the debtor places money to the hands of third parties, or where the debtor is vergens ad inopiam or in meditatione fugae (Symington v. Symington (1875) 3 R. 205; Burns v. Burns (1879) 7 R. 355; Noble v. Noble (1921) SLT 57).
This type of arrestment can be called on the debtor’s, defender’s, application and if no special circumstances can be shown, it will fall.
3. Commencement of the garnishment order
3.1 Upon whom is the attachment order served:
3.1.1. the debtor?
No.
3.1.2. the garnishee?
Service is only upon the arrestee. What is actually delivered to the arrestee is the “schedule” of the arrestment, and the messenger-at-arms or sheriff officer returns an “execution” or report on arrestment (Rules of Court, rule 16.156(f) and rule 16.15, Sheriff Court Ordinary Cause Rules, rule 5.4).
Here are the forms for the Court of Session execution by messenger-at-arms:
FORM 16.15-E
Rule 16.156(1)(f)
Form of schedule of arrestment in execution
5 Please illustrate the special regulations in the succession of questions 2.1. – 2.8.
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SCHEDULE OF ARRESTMENT IN EXECUTION
Date: (date of execution)
To: (name and address of arrestee)
IN HER MAJESTY'S NAME AND AUTHORITY, I, (name), Messenger-at-Arms, by virtue of an extract decree of the Court of Session dated (date) [or an extract of a document (describe deed) registered for execution on (date) in the Books of Council and Session] and extracted on (date) obtained at the instance of (name of party arresting) arrest in your hands (i) the sum of (amount), more or less, due by you to (common debtor's name and designation) or to any other person on his [or her] [or its] [or their] behalf; and (ii) all moveable things in your hands and belonging or pertaining to the (common debtor's name), to remain in your hands under arrestment until the (name of party arresting) has been paid (amount) in terms of the extract decree [or extract of the document registered in the Books of Council and Session].
This I do in the presence of (name, occupation and address of witness).
(Signed)
Messenger-at-Arms (Address)
(Signed)
Witness
NOTE This schedule arrests in your hands (i) debts due by you to (common debtor's name); and (ii) goods and other moveables held by you for him.You should not pay any debts to him or hand over any goods or other moveables to him without taking legal advice.
This schedule may be used to arrest a ship or its cargo. If it is, you should consult your legal adviser about the effect of it.
IF YOU ARE UNCERTAIN ABOUT THE EFFECT OF THIS DOCUMENT, you should consult a solicitor, Citizens Advice Bureau or other local advice agency or adviser immediately.
FORM 16.15-H
Rule 16.15(1)
Form of certificate of execution of arrestment or inhibition
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CERTIFICATE OF EXECUTION
I, (name), Messenger-at-Arms, certify that I executed (specify the kind of arrestment or inhibition, whether on the dependence of an action, counterclaim or third party notice, whether on the authority of an interlocutor (specify), on letters of arrestment or inhibition or in execution of a decree (specify)), [obtained] at the instance of (name and address of party arresting or inhibiting) against (name and address of common debtor or person inhibited) on (name of person on whom executed)-
* by leaving the schedule of [arrestment] [inhibition] with (name of defender or other person) at (place) on (date).
* by leaving the schedule of [arrestment] [inhibition] with (name and occupation of person with whom left) at (place) on (date). (Specify that enquiry made and that reasonable grounds exist for believing that the person on whom service is to be made resides at the place but is not available.)
* by depositing the schedule of [arrestment] [inhibition] in (place) on (date). (Specify that enquiry made and that reasonable grounds exist for believing that the person on whom service is to be made resides at the place but is not available.)
* by leaving the schedule of [arrestment] [inhibition] with (name and occupation of person with whom left) at (place of business) on (date). (Specify that enquiry made and that reasonable grounds exist for believing that the person on whom service is to be made carries on business at the place.)
* by depositing the schedule of [arrestment] [inhibition] at (place of business) on (date). (Specify that enquiry made and that reasonable grounds exist for believing that the person on whom service is to be made carries on business at the place.)
* by leaving the schedule of [arrestment] [inhibition] at (registered office or place of business) on (date), in the hands of (name of person).
* by leaving [or depositing] the schedule of [arrestment] [inhibition] at (registered office, official address or place of business) on (date) in such a way that it was likely to come to the attention of (name of defender or other person on whom served). (Specify how left.)
* edictally by leaving the schedule of [arrestment] [inhibition] with (name and occupation of person with whom left) at the office of the Extractor of the Court of Session, Parliament Square, Edinburgh on (date) and sending a copy of the
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schedule by registered post [or first class recorded delivery service] to (name and address of residence, registered office, official address or place of business or such last known place) on (date).
I did this in the presence of (name, occupation and address of witness).
(Signed)
Messenger-at-Arms (Address)
(Signed)
Witness
* Delete where not applicable
3.1.3. Is substituted service permitted6? The Rules of Court for the Court of Session provide in rule 16.1 the additional
possibilities of leaving the document in a dwelling place where the person executing
service, after due enquiry, has reasonable grounds for believing that that individual
resides but is not available; the document and any citation or notice, as the case may
be, in the hands of a person at, or depositing it in, a place of business where the
person executing service, after due enquiry, has reasonable grounds for believing
that that individual carries on business; or by posting the document and any citation or notice, as the case may be, to the known
dwelling place of that individual. Or in the case of another person by leaving the
document and any citation or notice, as the case may be, in the hands of an
individual at, or depositing it in, the registered office, other official address or a place
of business, of that other person, in such a way that it is likely to come to the
attention of that other person; or by posting the document and any citation or notice,
as the case may be, to the registered office, other official address or a place of
business, of that other person.
6 Please refer to articles 12-14 of the Proposal for a Council Regulation creating a European enforcement order for uncontested claims (COM/2002/0159 final), Official Journal C 203 E of 27.8.2002, p. 86
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This corresponds fairly with Article 12 of the proposal. However, there are no such guarantees as required under Articles 13 and 14. Only in relation to service abroad by post registered mail is required (rule 16.4)
Similar rules apply to service by sheriff officers under Act of Sederunt (Sheriff Court Ordinary Cause Rules), 1988, rule 6.1, however, here in cases of arrestment if service has not been personally effected, the sheriff officer needs to send a copy of the warrant to the addressee in registered post or first class recorded delivery to the last address of the arrestee, or to the place of business or where the business used to situate. Service through post as such is not possible in ordinary causes. The same rule applies also to summary causes, Act of Sederunt (Summary Cause Rules) 2002, rule 6.1.
3.2. Who initiates the delivery:
3.2.1. the enforcement organ?
Yes, this is for the messenger-at-arms or for the sheriff officer.
3.2.2. the creditor?
No, creditor only applies for a warrant and once granted, the service is for the messenger-at-arms or sheriff officer.
3.2.3. Which person/organ conducts the delivery?
As above, sheriff officer or messenger-at-arms.
3.3. Which legal consequences does an incorrect delivery have:
3.3.1. for the garnishee?
The attachment will fail and needs to be served again.
3.3.2. for the debtor?
Same, the arrestment will fail.
4. Object of the garnishment order
4.1. Which account7 balances are included:
4.1.1. the balance at the time of delivery?
Yes.
4.1.2. future account balances?
7 To the extent that different rules apply to different types of accounts, please indicate the differences. For the scope of the study, cf. the preliminary remarks.
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No. The arrestment will only affect the account balance as it stands at the moment. In The Royal Bank of Scotland v. Law (1996) SLT 83 it was held that as the arrestee received the funds only after the arrestment was served, the arrestment failed. This is because at the time of arrestment there were no funds available.
4.1.3. future closing of accounts?
Yes.
4.1.4. future deposits?
Yes.
4.1.5. the basic or overdraft credit line?
Arrestment is based on tantum et tale rule, i.e. the arrester can get no better right than the debtor had (Stair, The Laws of Scotland, Memorial Encyclopaedia, paragraph 262). This means that if the arrestee has a claim against the common debtor, even though future claim, the arrestment is subject to that claim because otherwise the arrestee would be prejudiced in that he would be deprived of his possible right of set-off or compensation (Gibson v. Wills (1826) 5 S 74). Therefore the arrestment will only attach the balance and if there is no balance, it will attach nothing (Mitchell and Muil Ltd v. Feniscliffe Products Co Ltd (1920) 1 SLT 199).
4.2. Is the access to the account limited to the amount of the enforcement title?
No, the court can pronounce a judgment whereby the creditor will be entitled to the sum in the enforcement title “more or less” (sheriff court in a judgment of Bremner v TSB (Scotland) (1993) S:T (Sh Ct) 3, following diligence on dependence, provisional orders in Ritchie v McLachlan (1870) M 815).
4.2.1. If so, are possible secondary claims to be considered?
4.2.2. Are the enforcement costs considered?
Yes, usually the court tries to count for more specific sums in its judgment, however, if words “more or less” are included, this means that even those costs which are not foreseeable at the time of the judgment are included.
4.2.3. If the access to the account is not limited to the amount of the enforcement title, is there a general “upper limit”?
No. This is the basis of the present review of the law. The Scottish Law Commission and the Scottish Executive have planned for a reform. This reform has not been undertaken as of yet though and there is no bill or proposal available.
4.2.4. How does the release of the account from garnishment take place?
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When the debtor settles the debt or the court releases the debtor from the debt.
4.2.4.1. Which enforcement organ is responsible?
The debtor can authorise the arrestee to release the funds for the creditor and thus settle the debt. In other case, it is the court.
4.2.4.2. Is the creditor to be heard?
No, once the arrestment order is served, only debtor can authorise the arrestee to release the funds for the creditor. However, the debtor cannot authorise the funds to be released for any other purpose, or the arrestee might become liable if the arrestee releases funds for other purpose than discharging the debt.
4.2.4.3. Are other persons to be heard?
No.
4.3. Effects of the agreement to an account current?
4.3.1. Are bank accounts usually kept as an account current?8
Yes, according to Crerar, The Law of Banking in Scotland.
4.3.2. Could you please describe briefly the legal basis and the legal effects of the account current:
4.3.2.1. Legal basis of the account current?
This point is very similar to English law and Scottish authorities cite English case law. It is a contractual relationship where the bank is a debtor for the customer – a bank account is a form of unsecured debt, repayable on demand, but which ranks after the satisfaction of preferential claims and secured debts on the bank’s insolvency (Re Russian Commercial and Industrial Bank [1955] 1 Ch 148).
4.3.2.2. Legal effects of the account current?9
As with English law, the leading authority under Scots law is also Joachimson v. Swiss Bank Corporation [1921] 3 KB 110. Here Lord Atkins held that “the bank undertakes to receive money and to collect bills for its customer’s account. The proceeds so received are not to be held in trust for the customer but the bank borrows the proceeds and undertakes to repay them. The promise to repay any part of the amount due, against the written order of the customer addressed to the bank at the branch, and as such written orders may be outstanding in the ordinary course
8 If giro accounts of individuals are not current accounts in the proper sense (e.g. in France: compte de dépôt), please comment on their legal status following the structure of questions 4.3.1. - 4.3.3. . 9 Please attach the pertinent contract forms, respectively the law regulations in the annex to the national report.
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of business for two or three days. It is a term of the contract that the bank will not cease to do business with the customer except upon reasonable notice. The customer on his part undertakes to exercise reasonable care in executing his written orders so as not to mislead the bank or to facilitate forgery.” The essential principles are also laid out in the Scottish case of Royal Bank of Scotland v. Skinner (1931) SLT 382: “it is now well settled that the relationship of customer and banker is neither a relation of a principal nor a relation of a fiduciary nature, trust, or the like, but a simple relation … of creditor-debtor. The banker is not, in the general case, a custodier of money. When money is paid in, despite the popular belief, it is simply consumed by the banker, who gives an obligation of equivalent amount.”
4.3.3 Does an agreement to an account current take priority over the garnishment order:
4.3.3.1. Is the garnishment order limited?
No, arrestment order can attach to all accounts where the debtor has assets, including money held on deposit receipt (Crown Proceedings Act 1947, section 46 as amended by the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, section 49(b)).
4.3.3.2. Can the creditor cancel the account?
No, the arrestee freezes the bank account for the debtor.
4.3.3.3. Can the bank cancel the account because of the garnishment?
No, this is only allowed for the debtor, however, not when the account is arrested.
4.3.3.4. Which effects do earlier assignments of a claim of the debtor over the account have?
The arrestment freezes the account as from the date of arrestment. However, as stated above, point 4.1.5 the principle of tantum et tale provides that if the debtor has for example two accounts, one in credit and one overdrawn, only the remaining positive balance can be arrested if there is any. Similarly if the customer has loans with the bank, the arrestee.
4.3.3.4.1. Do these dispositions remain effective, even if they concern future claims?
Normally the arrestment freezes the whole account. Therefore, the future dispositions cannot be paid from the account.
4.3.3.4.2. What conditions have to be fulfilled to perpetuate the effectiveness of the dispositions?
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4.3.3.4.3. Is the effectiveness of such dispositions subject to time constraints?
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4.4. Are there special regulations for joint accounts?
No. Joint accounts remain a problem under the current legislation. One the one hand, joint property is not arrestable and it could be therefore argued that such an arrestment has no effect (Bank of Scotland v. Robertson (1870) 8 M. 391 indicates to this direction, however, it did not settle the question). But on the other hand where a joint deposit receipt was arrested by one party only, and the bank paid the other, it was held that the bank was liable for breach of arrestments (Allan’s Executor v. Union Bank of Scotland Ltd. (1909) SC 206). The modern practice seems to be though that upon the receipt of the arrestment the bank should treat the whole account as arrested, and it is for the court, in a process of furthcoming to determine to what the arrester is entitled (Finlayson, Law Lectures to Bankers (1939) and Stair, The Laws of Scotland, Memorial Encyclopaedia, paragraph 272).
4.4.1. Can the other party to a joint account make further dispositions over the account?
No, if the whole account is arrested.
4.4.2. Are there any restrictions?
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4.4.3. Does the enforcement organ decide on this?
Ultimately the court will decide whether and to what extent the arrestment will prevail in action for furthcoming.
4.5. Are there regulations concerning the concealment of bank accounts (e.g. trust accounts, accounts of straw men)?
There are two special cases: trusts and shares. In relation to trusts, the arrestment will be effectual only if the arrester is a creditor of the trust but the bank must be cautious and treat the account as frozen unless the invalidity of the arrestment is clear (there are no clear Scottish authorities on this point, this is discussed by the Stair, The Laws of Scotland, Memorial Encyclopaedia and for example Wallace and McNeil, Banking Law, (10th Ed. 1991). The only authority cited by these sources is Plunkett v. Barclays Bank Ltd. [1936] 2 KB 107 which is an English case and in diligence English case law has very limited authority. However, in a recent case of Landcatch v. Sea Catch plc (1993) it was held that as the property was held as trustees, and any control over the account by the pursuers was exercised as trustees and the arrestment failed).
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The second situation is in relation to shares. If shares have been transferred to the bank in security then the arrestment will attach the common debtor’s reversionary interest. However, if the shares are not transferred to the lending bank itself but to a bank nominee company, an arrestment in the hands of the bank itself will attach nothing. (Baines and Tait v. Compagnie Générale des Mines d’Asphalte (1879) 6 R. 846; or Commercial Bank of Scotland Ltd. v. Eagle Star Insurance Co Ltd. (1950) SLT (Notes) 30)
Whereas the case of jewellery or other valuables in the bank safety deposit box, these are arrested with the bank account.
4.5.1. Is the bank required to verify the existence of such accounts?
No, there is no obligation of disclosure for the bank for any accounts. However, if the bank fails to disclose any accounts where there are arrestable funds, the bank becomes liable for the creditor if these funds are then exhausted.
4.5.2. Is the title against the debtor sufficient for the garnishment?
The warrant is.
5. Effect of the garnishment order
5.1. Interdiction of payment for the garnishee?
No, the arrestee can take the debts owed by the debtor. See above on tantum et tale, point 4.1.5
5.2. Interdiction of collection for the debtor?
Debtor cannot reach the frozen funds for any other purpose than payment for the creditor.
5.3. Legal status of the creditor:
5.3.1. Does the creditor obtain a lien on outstanding accounts, which grants him priority?
Yes, apart from debts that are already due prior the attachment and the debtor’s obligations due to the arrestee.
This is also shown by Iona Hotels Ltd (in receivership), Petitioners, (1991) SLT 11 where the debtor tried to grant a floating charge for the creditor after the arrestment of the bank accounts. The court held in this case that the voluntary action failed as the arrestment had a priority because of time, furthermore, the court did not see any reason to use a floating charge rather than a prior arrestment.
5.3.2. Are competing garnishments by other creditors to be considered?
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Where there is more than one arrestment, the authorities follow the attachment theory, i.e. “In our earlier law arrestment was viewed simply as a prohibition against arrestee parting with the subject arrested, but later it came to be regarded as an attachment.” (Hume, Lectures, Volume VI) Therefore arrestments rank by their dates (Execution of Diligence (Scotland) Act 1926, section 1). If two arrestments are served on a same day, they rank pari passu even though one was in fact served earlier in the day (Stair, Institutions, III). Where there are multiple arrestments, so-called double distress situation, the ranking can be determined at a furthcoming and arrestments can be conjoined or more usually there is multiplepoinding which is alternative to furthcoming or conjoint furthcoming. If the second arrester raises an action for furthcoming and the arrestee does not respond with multiplepoinding, this might make the arrestee to breach the arrestment and oblige him/her to pay for the second arrester and he/she might have to pay damages to the first arrester (Nairn v. Brown (1724) Mor 820).
5.3.3. If so, within which period must competing garnishments be attached?
On the same day, or the arrestee needs to use multiplepoinding as a procedure.
5.3.4. Is the claim transferred to the creditor for the collection of the sum?
Only after an action of furthcoming which is the second action in the court.
6. The legal status of the garnishee
6.0. The service of the garnishment order to the garnishee, is it a necessary element for the validity of the garnishment ?
Yes, arrestee is the only person to whom the arrestment order is served.
6.1. The declaration of the garnishee
6.1.1. Who requests the garnishee to give information about the claim/account:
There is no legal obligation. However, if the arrestee does not give out information, and there are funds available, the arrestee might be liable for damages for the creditor.
6.1.1.1. the enforcement organ?
6.1.1.2. the creditor?
6.1.2. Is there a period, within which the declaration is to be executed? Duration of the period?
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No, there is no period. This depends on the first action of confirming the debt and the second action of furthcoming.
6.2. The object of the declaration of the garnishee10:
None. This area is subject to reform. The Scottish Executive and the Scottish Law Commission are considering whether the arrestee should have a duty of disclosure or whether the debtor should.
6.2.1. Current balance of the account?
6.2.2. Further bank accounts of the debtor?
6.2.3. Existence of the claim?
6.2.3.1. Also possible ancillary rights?
6.2.3.2. Objections against the claim?
6.2.4. Garnishments of competing creditors?
6.3. Legal effects of the garnishee declaration:
6.3.1. Is the declaration treated as an acknowledgement of the claim?
6.3.1.1. Is the missing declaration feigned as an acknowledgement?
6.3.2. If not, what are the effects for the lawsuit of the creditor against the garnishee (shifting of the burden of proof)?
6.4. Sanctioning the garnishee declaration
6.4.1. Does the incorrect / missing declaration lead to the acknowledgement of the claim?
Not applicable. Otherwise that if the arrestee does not arrest the account, this gives rise to liability for damages for the creditor.
6.4.2. Does the missing assertion of objections lead to their exclusion?
6.4.2.1. Is there an obligation of the garnishee to pay damages?
Yes, if the arrestee does not arrest the account or gives funds to other creditors from the account.
10 If available, please attach a common form for the garnishee declaration.
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Additionally an arrestee who acts in breach of an arrestment is also theoretically in contempt of the court and liable to a fine or imprisonment (Inglis & Bow v. Smith (1867) 5 M. 320)
6.4.2.2. Please name the factual requirements of the obligation to pay damages, in particular whether guilt of the garnishee is necessary?
The arrestee who in knowledge of the arrestment parts with the funds arrested to the prejudice of the arresting creditor is liable for to him for the value of the funds arrested up to the limit of the amount secured by the arrestment, or, if the value of funds cannot be ascertained, for payment of the amount of debt owed to the arresting creditor (Steward, Diligence). Therefore the arrestee needs to be in knowledge of the arrestment for the liability to arise.
6.4.2.3. Extent of liability for damages?
Either the funds that were supposed to be arrested or the debt of the debtor, see above.
6.4.2.4. How can the obligation to pay damages be made valid?
The arrestee is prohibited from parting with the arrested subjects to the prejudice of the arresting creditor (Breach of Arrestment Act 1581), but he is not under duty to invest the arrested funds and is not liable to pay interest for the debtor in the event of their being released from the arrestment (Glen Music Co Ltd v. City of Glasgow D.C. (1983) SLT (Sh. Ct.) 26).
6.5. The protection of the garnishee
6.5.1. Which objections can the garnishee assert?
6.5.2. Is there a protection against erroneous payments to the debtor:
6.5.2.1. as a good faith protection?
Yes, this is the only protection for the arrestee. If the arrestee is in knowledge, he/she is liable for damages.
6.5.2.2. as a claim of unjustified enrichment against the creditor?
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6.5.3. Can the garnishee claim reimbursement of his expenses?
No.
6.5.3.1. If so, of the creditor?
6.5.3.2. If so, of the debtor?
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7. Debtor’s protection (immunities)
7.1. Does the garnishment of the claim also include the so-called “salary account” (including social security benefits, pensions, etc.) of the debtor?
Yes, arrestment of a bank account attaches to all funds held by the debtor in the account. Even though Debtors (Scotland) Act 1987, section 73(3)(e) provides for exemption on earnings arrestment, this does not extend to bank account because “a sum which is alimentary remains so for as long as it is identifiable” (Woods v. Royal Bank of Scotland (1913) (Sh Ct) 499). This area is currently under review and solutions are proposed by the Scots Law Commission and the Scottish Executive.
7.2. If not, please explain the procedure of enforcement in salary accounts11
7.2. If so, are there special protective provisions for the debtor and his family?
Not for bank account arrestment.
7.3.1. Are there exemption limits of the garnishment for the debtor himself?
No, all funds of the debtor can be arrested.
7.3.1.1. Are those regulated by law?
7.3.1.2. Does the enforcement court define those limits?
7.3.2. Are there exemption limits of the garnishment for the relatives of the debtor (in particular alimony creditors)?
No.
7.3.2.1. Are those exemption limits regulated by law?
7.3.2.2. Does the enforcement court determine the limits?
7.3.3. Is there an indexation of the exemption limits?
7.4. The procedure of debtor’s protection
7.4.1. Are the protective provisions applied ex officio or upon application (by the debtor and his relatives)?
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7.4.2. Can the debtor claim the disbursement of a certain allowance for his living costs:
7.4.2.1. on the basis of a decision of the enforcement court?
11 In doing so take the pattern of questions 7.3. and 7.4. for orientation.
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7.4.2.2. directly from the garnishee on presentation of a form?
7.4.3. Who calculates the allowance:
7.4.3.1. the enforcement organ?
7.4.3.2. the garnishee?
7.5. Can the creditor on his part claim a special need of protection:
The creditor can request for the special form of arrestment, secured arrestment if there are specific circumstances, see above point 2.9
7.5.1. during the enforcement of a maintenance claim?
Yes.
7.5.2. during the enforcement of a tort claim?
7.5.3. Which enforcement organ decides on the request?
The courts.
8. The collection of the claim
8.1. Which powers does the creditor have to collect the garnished claim?
Arrestment in execution is still an inchoate claim – action for furthcoming is still required for collection of funds.
8.1.1. Is the claim transferred to him?
No.
8.1.2. Is he empowered to collect the claim?
Not without action on furthcoming.
8.1.3. Does the collection require a further decision of the enforcement organ?
Yes, this is an action on furthcoming. “An arrestment and forthcoming is an adjudication preceded by an attachment, and the essential part of the diligence is adjudication” (Lucas’s Trs v. Campbell (1894) 21 R. 1096).
8.1.4. How does the title of the claim in favour of the creditor take place:
8.1.4.1. in a separate process between creditor and garnishee?
8.1.4.2. Title by the enforcement court, if the garnishee recognizes the claim.
It is a separate decree from the court. However, arrestee cannot accept it. The court will have to accept it. Similarly if the debtor wishes to pay the debt before action for
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furthcoming, the debtor can authorise the arrestee to pay the debt to the creditor. But the debtor cannot authorise any other claim to be paid.
8.2. What are the rights of competing creditors?
See above point 5.3.2
8.2.1. Does the priority principle apply or is the sum seized distributed among all participating creditors (group principle)?
Only if they have arrested the account on the same day, otherwise priority claim applies.
8.2.2. If the group principle applies:
8.2.2.1. How does the registration of further claims take place?
8.2.2.2. Is there a public proclamation?
8.2.2.3. Are there periods for registration? What is the legal consequence of the failure to observe the time limit?
8.2.2.3. How are the claims distributed?
9. Information in law and in fact
9.1. How many garnishments of claims are caused annually in your country?
Applications for arrestment proceedings rose from 1201 in 2000 to 1771 in 2001. Whereas in 2000 were granted 881 arrestments and in 2001 1036. Source: Civil Judicial Statistics in Scotland, Scottish Executive, http://www.scotland.gov.uk/library5/justice/cjst-06.asp
9.2. In which relation do these measures stand to:
9.2.1. enforcement measures altogether (quantity/extent)?
1201 in 2000 and 1771 in 2001.
9.2.2. the execution levied upon movable goods (quantity/extent)?
881 in 2000 and 1036 in 2001. However, there were only 184 actions of furthcoming disposed of in the sheriff courts and none in the Court of Session in 2000.
9.3. Is there any information about the duration of proceedings with account distraint:
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Unfortunately this information is not provided in this report neither in the courts’ reports.
9.3.1. with regard to the garnishment of the account?
9.3.2. with regard to the satisfaction of the creditor?
9.3.3. with regard to possible remedies of the garnishee at the enforcement courts?
9.3.4. when the creditor asserts the claim judicially against the garnishee?
9.4. Are there reports of any execution problems in practice in your country?
9.5. Are there political proposals to legally alter the procedure of garnishing bank accounts?
The Scots Law Commission and the Scottish Executive plan to have a comprehensive review of the arrestment of moveables and diligence on dependence in Scots law. As pointed out earlier, the Scottish Executive has pointed out need for reform in relation to limitation of the property which can be attached by arrestment; some provision for a minimum security for the debtor along the line of earnings arrestment; duty of disclosure by the arrestees or debtors of their account details; and some review of actions of furthcoming. Further see, Scottish Executive, Types of Enforcement, http://www.scotland.gov.uk/consultations/justice/CivOb-part5.pdf; and consultations with the public. See also the Scottish Law Commission Report on Diligence, http://www.scotlawcom.gov.uk/index-1.htm
9.6. Provided that an amount of 10.000,- € is executed, what are the resulting costs for the enforcement act:
There are no statistics on this point either.
9.6.1. with the enforcement organ?
9.6.2. for the availment of an attorney (by the creditor)?
9.6.3. Who has to carry these enforcement costs?
The debtor needs to carry all enforcement costs in relation to arrestment.
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10. Cross-border garnishment of bank accounts
10.1 Is a cross-border garnishment of bank accounts permissible in your country:
10.1.1 against a garnishee abroad?
No, territoriality of proceedings principle governs where the assets can be arrested.
10.1.2 against a debtor abroad?
No, Civil Jurisdiction and Judgments Act 1982 Schedule 8 is clear on the matter: only if the debtor is domiciled in Scotland, the Scottish courts have jurisdiction.
10.2 If such an account distraint is inadmissible, which reasons are given for that:
10.2.1. Territoriality of the enforcement act?
This is the traditional ground for Scots law to find jurisdiction.
10.2.2. Protection of the debtor?
This notion arrived with the rules of the Brussels Convention.
10.2.3. Protection of the garnishee?
10.2.4. Protection of competing creditors?
Scots law gives rigid priority for the first to arrest the account, therefore there is very little protection for the competing creditors.
10.2.5. Could you please give further reasons
The Scots law seems to have devolved through two very different concepts: that of the territoriality of proceedings and the system developed for the Brussels Convention, now contained also in the Brussels Regulation. It seems on the face of it that the provisions provide very narrow grounds of jurisdiction for Scottish courts: both the domicile of the defendant and the territoriality of assets need to be ascertained before the Scottish courts can entertain jurisdiction. However, this rule is mitigated with generous recognition and enforcement of judgments where the debtor’s domicile is within Brussels/Lugano area and the person has assets in Scotland. As according to these measures the judgments are to be recognised almost as a right – taking into consideration of the very narrow exceptions to the recognition and enforcement. Therefore only the procedural aspects of the recognition and enforcement procedure, such as the petition to the court need to be
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reconsidered to have a really functioning system of cross-border arrestment of claims.
10.3. If a cross-border garnishment of bank accounts is permissible, how is it accomplished:
10.3.1. by delivering the enforcement act to the debtor/garnishee according to Reg. 1348/00/EC?
Unfortunately here the Scots law still upholds petition to the court.
10.3.2. by serving the enforcement act to the domestic head office of the bank, however with the consequence that also accounts are seized abroad?
10.3.3. Are fictitious deliveries permissible?
10.3.4. Which law is applicable to the cross-border enforcement act (with regard to the foreign account):
The Scots private international law regards diligence as a matter for the lex situs (Stair, The Laws of Scotland, Memorial Encyclopaedia, paragraph 130) on basis of where the assets are situated.
10.3.4.1. with regard to the enforcement act itself?
The Scots procedural law rules apply. Petition to the court which then authorises the messenger-at-arms or sheriff officer to serve the arrestment.
10.3.4.2. with regard to the protection of the debtor?
This has been decided already in substance in the jurisdiction where the debtor has a domicile. The only appeal under Scots law for the debtor is to show that there is no basis for the claim.
10.3.4.3. with regard to the protection of the garnishee?
This is governed by the Scots law as it is procedural aspects of the service.
10.3.4.4. with regard to competing creditors and material collateral [material securities]?
Within the Scottish territory, Scots law will apply to these aspects of enforcement.
10.4. Recognition of foreign orders for enforcement
(particularly garnishment orders) 12
12 Principles of private international law and international procedural law allow a distinction between the recognition of the enforcement process itself on the level of (international) procedural law and the
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10.4.1. Are foreign orders for enforcement recognized and enforced in your country (procedural recognition13) ? If so:
Yes.
10.4.1.1. What rules apply to the question of recognition ?
If the defendant domiciled in Brussels/Lugano area, then the rules of the Brussels Regulation/Convention or Lugano Convention.
Within the UK judgments, Schedule 8 of Civil Jurisdiction and Judgments Act 1982 applies which has transposed the rules of the Brussels network into intra-UK purpose.
10.4.1.2. What law applies to the order for enforcement ?
This is Scots law – procedural aspect which will be fulfilled through the rules of Scots procedural law.
10.4.1.3. What law is applicable regarding the protection of the garnishee (including the duty to give information):
At the stage of enforcement, Scots law. Therefore the arrestee is not obliged to divulge the details of the account (even though it is beneficial for the arrestee to do so and therefore it is often done).
10.4.1.4. What law is applicable with regard to competing creditors ?
Scots law as this comes within the territoriality and procedural law aspect.
10.4.1.5. What law is applicable with regard to debtor protection?
Scots law, therefore the debtor at the stage of enforcement does not really have protection for the assets in the bank account.
10.4.1.6 If not: which reasons are given for that (see 10.2.) ?
10.4.2. Does your national law acknowledge the effects of a foreign order for enforcement when applying substantive14 rules of law ?
See above, as with the procedural points.
recognition of some effects of the foreign process on the level of substantive law. 10.4.1. addresses the first issue, 10.4.2. the second issue. 13 The form of procedural recognition in this sense would closely resemble the recognition described in Art. 32 et seq. Regulation 44/01/EC. 14 In this context, “substantive” is used in contradistinction to conflict of laws rules. It is intended to include procedural law.
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10.4.2.1. What conflict of law rules apply to the consideration of foreign orders for enforcement ?
Lex situs.
10.4.2.2. What effects are recognised?
10.4.2.2.1. Restraints on the debtors capability to dispose of the claim (due to the attachment) ?
10.4.2.2.2. Transfer of the claim to the creditor ?
10.4.2.2.3. Other effects ?
10.5. Debtor’s procedural options to avoid enforcement where changes of circumstances occur after the decision giving rise to the title (particularly where the judgment debt has been satisfied) 15
Appeal in the state of origin.
10.5.1. Jurisdiction
10.5.1.1. Of the court responsible for decision in substantive action ?
10.5.1.2. Of the court / enforcement organ where the claim is located ?
10.5.1.2.1. If so: Is there some form of cooperation with the court responsible
for decision in substantive action ?
10.5.1.2.2. If so: How does the cooperation take place ?
10.5.2. Would the realisation of the proposal on the European Enforcement Order (see supra note 15) change this situation ?
It brings a very similar situation to the Brussels Regulation, apart from further streamlining the registration of the judgment. However, as Scots law does not interfere with the questions of substantive validity of the judgment the impact remains limited.
10.5.3. Additional remarks
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10.6. Would you please illustrate briefly which one of the enforcement models for a cross-border garnishment of a bank account, specified in the preliminary
15 Concerning the questions in section 10.5., please indicate the positions taken by your national law in case of a) a title produced in your country, b) the claim being situated (account held) in your country.
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remark, is to be preferred and – accordingly - which concerns you might have against the permission of such an enforcement act?
The second proposal of cross-border garnishment of bank accounts within Europe-wide operating banks has some appeal. This is because it would be a very satisfying situation for creditors, both in relation to business debtors and some private clients. In the first category the sums can be very large and the assets scattered all across Europe. Whereas in the second category if private person has assets in different jurisdictions, this would enable the creditors to find the assets and more difficult for the debtor to hide them. However, there are two concerns arising from this. First is that this is very creditor friendly system and would require further harmonisation as to the safeguards for the debtors. Some jurisdictions prefer to give more wide possibilities for creditors than debtors whereas other jurisdictions wish to keep the higher standard of protection for the debtors. Therefore, it would be difficult to see European wide consensus on the matter. Secondly, this would not guarantee an equal treatment for the debtors as it would depend whether the particular debtor has an account in a European wide bank.
The most likely solution is to continue along the lines of the Brussels Regulation and the proposed Regulation on uncontested claims. Even though these measures do not result in every case into perfectly harmonious enforcement of arrestment claims, they provide a good medium as they allow in majority of cases the enforcement through without any great hindrances for the creditor, such as the use of enforcement certificate which is recognised in all Member States. However, at the same time they do provide protection for the debtor in those cases where there are grave irregularities. Naturally these grounds for challenging can be curbed to a certain extent, however, it not necessarily fully achievable at this stage.
Case Study:
Until it is realised that the previous arrestment is unfounded the position of the creditor G is not so good. Creditor G in that case would be trying to arrest the account as second in time line and if all the funds had been exhausted, his/her arrestment would fall.
However, as it is realised that the arrestment is unfounded creditor G is in a preferable position. This is because according to the principles of Scots law creditor
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G is now first arrester of the account and thus he/she has the priority for the account. As Scottish courts normally arrest “more or less” the amount of the debt to be able to recover expenses accrued to the creditor, the whole of the account would be arrested first for G. However, there are €2000 extra funds in the account.
This primary arrestment will arrest thus the whole account for creditor G. The second creditor to whom is due €5000 can join the proceedings and at that point the arrestee will have to organise for multiplepoinding procedure. This procedure allows secondary arrestees to join the arrestment, however, still the priority would go for creditor G as he/she is the first to arrest the account. Therefore, if there are funds left after the debt owed to creditor G has been satisfied, these funds will be directed to the secondary creditor. This will depend on whether there are other expenses that are also due to creditor G. If there are no funds left, the second arrestment fails.