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ENFORCEMENT OF CIVIL OBLIGATIONS IN SCOTLAND

4 DEBTOR PROTECTIONS

4.1 In this Part, existing debtor protections are examined and proposals for improvement brought forward together with proposals for introduction of a new debt management and debtor protection measure, a statutory debt arrangement scheme.

General Purpose

4.2 The importance of maintaining a system which enables efficient enforcement, particularly for recovery of debts by creditors, ought not be underestimated. It is certainly in the public interest that there should exist an efficient, speedy and cost-effective system of debt recovery. Commercial confidence and the success of day-to-day commercial and private transactions rely on compliance with legal obligations. Where this compliance breaks down, creditors should have access to appropriate legal remedies.

4.3 However, it is equally in the public interest that the debt recovery system properly protects the rights of the weaker party, usually the debtor. At the most basic level, any person who is the subject of legal action ought to receive appropriate procedural protections, such as fair notice of the action being taken against him, full information about it and the opportunity to participate in the proceedings. Furthermore, the system of enforcement itself should not lead to debtors suffering additional serious financial hardship or poverty. More widely, a diligence system which was perceived to alienate, confuse or oppress debtors, by subjecting them to unduly harsh treatment, would not command the necessary public confidence.

4.4 Debtor protection is a means of preserving a balance between debtor and creditor interests. It is not suggested that those in debt do not have responsibility for meeting their obligations. Everyone, in all circumstances, has a duty to pay their debts. Nor is it sought, in this exercise, to address or resolve the causes of debt, which is an issue to be addressed in a different context and which does not fall within a study of the enforcement system.

The Debtors (Scotland) Act 1987

4.5 The Debtors (Scotland) Act 1987 incorporated most of the recommendations made by the Scottish Law Commission in its 1985 Report on Diligence and Debtor Protection.¹⁰⁸ Focussing on small individual and consumer debts, the Commission had concluded that the diligence system, by and large, allowed creditors effectively to recover sums due to them. However it took the view that debtors who were willing, but unable, to pay their debts were not adequately protected against personal distress and undue economic hardship caused by the operation of diligence.

4.6 The 1987 Act, therefore, introduced various measures to improve debtor protection. These included mechanisms designed to stop diligence being used at all, time to pay directions and orders, and reform of the diligences used most often against individual debtors. The 1987 Act also changed the procedural rules relating to court expenses and representation in an attempt to make it easier for both creditors and debtors to operate within the diligence system. The 1987 Act did not implement one key recommendation of the Commission, the introduction of debt arrangement schemes. This is discussed in detail in Part 4 D.

(A) TIME TO PAY ARRANGEMENTS

4.7 The Debtors (Scotland) Act 1987 introduced two mechanisms commonly described as ‘diligence stoppers’. The purpose of these diligence stoppers was to give additional time to debtors who were willing but unable to pay their debts and allow them to meet their obligations safe in the knowledge that they could not be subjected to diligence. The first diligence stopper is the Time to Pay Direction (TTPD). The Time to Pay Order (TTPO) is the second of these diligence stoppers and is similar to the TTPD.

4.8 The Consumer Credit Act 1974 introduced a number of measures designed to protect individuals who entered into consumer contracts. These measures included giving debtors under such contracts the opportunity to apply for a Time Order (TO). The time orders are very similar to the TTPD and TTPO available under the 1987 Act, allowing a debtor to repay an outstanding debt free from the threat of diligence. However, the rules of procedure governing applications for TO under the 1974 Act are slightly different to those which govern directions and orders under the 1987 Act and measures included in the 1987 Act are not available to applicants for TOs under the 1974 Act.

Summary of Current Law

Time to Pay Directions

4.9 The court may grant a TTPD on granting decree for payment. A debtor (defender) may apply for a TTPD after he receives a summons in an action for payment of money but before the court has pronounced decree in the case. The defender may offer to pay the debt to the creditor (pursuer), either by instalments (weekly, fortnightly or monthly payments) or by one single payment of the whole sum. Alternatively, the defender may indicate that he intends to appear in person, or be represented, at a hearing to consider his application for time to pay. The application form for a TTPD also provides the defender with the opportunity to give details about his financial position. If the defender wishes to obtain a TTPD he must admit that he owes the sum sued for and, if the defender’s application is successful, a decree for the whole sum will be granted in favour of the pursuer. The pursuer is not normally informed of the defender’s application for a TTPD. He must check with the sheriff court whether an application has been made, and must visit the court to examine any details of the defender’s financial position which have been provided. The pursuer may either accept or reject the defender’s offer.

4.10 If the pursuer accepts the offer, that is the end of the matter. The grant of a decree against the defender is normally a formality. Although the defender is not informed at this stage that his application has been accepted by the pursuer, the instalment arrangement which has been agreed is not effective until the pursuer intimates the decree to the defender.¹⁰⁹ If the pursuer rejects the defender’s offer of payment, a hearing takes place. The summons notifies the defender of the date on which a hearing will take place, in the event that his offer for a TTPD is rejected by the pursuer. However, because the defender is not informed that his application has in fact been rejected, he will not know that the hearing is to go ahead unless he contacts the court directly. The pursuer may wait until the day before the hearing is scheduled before deciding whether or not to accept the defender’s application. New summary case and small claim procedure rules will extend this to two days prior to the hearing.¹¹⁰ The hearing takes place before a sheriff who must decide whether or not to grant the TTPD. The sheriff may grant the application even if the pursuer has objected to it. He will assess whether it is reasonable to do so in all the circumstances made known to him. The 1987 Act does not give any guidance as to which factors a sheriff should take into account in considering an application for time to pay.

4.11 Whilst a TTPD is in force, and provided that the defender complies with its terms, the pursuer may not enforce the decree by using diligence against the defender. However, should the defender default on the arrangements, the pursuer may proceed directly to diligence. In the case of instalment arrangements, ‘default’ means two payments missed and a third due.

4.12 After a TTPD has been granted, it is possible to have its terms varied by the court. An application for variation may be made by either the defender (e.g. where he feels the payments are too difficult to maintain) or by the pursuer (e.g. where he believes the defender’s circumstances have improved sufficiently to justify increased payments).

Time to Pay Orders

4.13 By contrast to the TTPD, the TTPO is available only after decree has already been pronounced against the defender and the pursuer has initiated diligence. The defender may, at any time before diligence has been completed, apply for a TTPO. However, there are a number of circumstances in which a defender is not able to apply for a TTPO, the most significant of these being where a TTPD has already been in force in relation to the debt.¹¹¹ A TTPO is not available after a summary warrant has been granted but this is discussed further in Part 6.

4.14 Unlike TTPDs, the defender is not automatically informed by the court (or by the pursuer) of his right to apply for a TTPO, nor is he automatically provided with the appropriate form with which to make an application. If the pursuer does not object to the application by the defender, the TTPO is granted automatically. If the pursuer does object, a hearing is fixed and the sheriff determines whether the application ought to be granted.

4.15 The effect of a TTPO differs depending on the type of diligence which has been commenced by the pursuer and which the defender is seeking to halt. In general terms, however, a TTPO prevents completion of diligences which have started and makes fresh diligence incompetent. The TTPO remains in force so long as the defender maintains the payments required by the order.

4.16 Where the defender is in default in respect of the arrangements made under the TTPO, the TTPO lapses and the pursuer’s right to do diligence is restored. Again, like TTPDs, default in relation to an instalment arrangement means two payments remaining unpaid and a third being due for payment.

Principal Research Findings

Research Results on TTPDs

4.17 Use and Success of TTPDs. The research evaluation concluded that TTPDs were not used to their full potential by debtors. As a result, "time to pay directions…have not been wholly successful as they have not led to significant proportions of debtors paying their debts by instalments free from the threat of diligence." ¹¹² However, the research suggests that the lack of success of TTPDs is linked primarily, though not exclusively, to low levels of uptake by debtors rather than the responses of creditors and courts to applications for TTPDs

4.18 The Survey of Payment Actions in the Sheriff Court looked at a sample of payment actions and the response of debtors following service of a summons upon them. Significantly, in nearly 70% of all cases in the sample, the defender made no response to the summons.¹¹³ Thus, a very large number of debtors ‘opted-out’ of the protections of the 1987 Act at an early stage of the action against them. The proportion of all individual defenders who applied for a TTPD was estimated to be about 24%. This is a marginal increase on the 19% rate calculated by a 1980 study of the then existing instalment decree.

4.19 By contrast to this low application rate, the success rate of applications made by debtors was relatively high with around 74% of all applications for a TTPD being accepted by the creditor without the necessity of a hearing before a sheriff.¹¹⁴ Where an application for a TTPD was rejected and hearing subsequently held, around a third of these applications were granted by the sheriff. This gives an overall success rate for TTPD applications of over 80%.

4.20 Reasons for low uptake. It would seem from the research that the reasons why debtors fail to apply for TTPDs are varied. Where debtors did not seek advice some reported ignorance of the options available to them as being the reason for their failing to respond to the summons. Others felt that they were not financially able to make an offer, or that the offer they could make would not be accepted, ¹¹⁵ and still others believed that making an offer would be futile because they believed the courts to favour creditors in debt recovery cases.

4.21 Whether debtors felt that they did not have access to, or were not provided with, adequate information about the availability of TTPDs is difficult to assess. Certainly, the research reported that those who did apply found the application forms (which are in most cases on the reverse of the summons) fairly easy to understand and straightforward to complete. It may be that the reaction of debtors themselves contributes to their inaction, many are understandably distressed when they receive the summons and may have difficulty understanding the options available to them.¹¹⁶

4.22 By contrast, the research evaluation revealed more complex patterns of behaviour where the debtor did seek advice from the creditor or an advice agency such as a Citizens Advice Bureau. The research reported that, "seeking advice had a positive impact on the outcome of respondents’ applications" ¹¹⁷ for TTPDs. However, many debtors who sought advice did not go on to apply for a TTPD. Some had sought advice from the creditor and were either misadvised about the availability of TTPDs and/or came to an informal repayment arrangement with the creditor. In other cases, advice was sought from debt advice agencies and a number of factors influenced whether advisers would recommend an application for time to pay. Of the advisers interviewed, many were reluctant to advise clients to apply for a TTPD. The principal reason for this appeared to be the existence of multiple debt. Advisers were of the view that a negotiated agreement which involved all of a debtor’s creditors was more flexible and of more benefit to a debtor than one isolated time to pay direction. Indeed, the research reported that debt advisers found it easier to secure informal repayment arrangements for their clients because creditors themselves preferred such arrangements.

4.23 A further reason for a negative view of TTPDs was linked to the rule that a TTPO cannot be granted where a TTPD has previously been in place. Some advisers were aware that if they had only one chance in relation to time to pay, they were more likely to hold the option of a TTPO in reserve.¹¹⁸ They appear to have viewed retaining the option of a TTPO as a safety net if informal negotiations for instalment payments broke down and the creditor resorted to proceeding to decree. Failure to apply for a TTPD may therefore be a deliberate step in a co-ordinated plan to reduce the debts of the defender.

4.24 The Application Process. The research reported some confusion on the part of both debtors and creditors in relation to the process of applying for a TTPD, although debtors did report general satisfaction with the format of the application form for a TTPD.¹¹⁹ Debtors may be unaware of the success or otherwise of their application for a TTPD because they do not know that they can only find out by contacting the court. Debtors also expressed cynicism about the application process as many believed that the creditor was the ultimate arbiter of the application. They did not know that a sheriff could, or trust that he would, grant a TTPD where the creditor had rejected the application. Many perceived sheriff clerks and sheriffs themselves to be pro-creditor, rather than independent and impartial.

4.25 Although not specifically addressed by the research, it has also been suggested that many debtors do not actually understand that the granting of a TTPD occurs as part of the process of decree being pronounced against them. This is thought to be particularly true in eviction actions involving rent arrears for which the research reported that: "it is clear from practice and experience that Defenders when they receive this form are totally unaware that by accepting the claim for the monetary payment and by making an application for a TTPD that they are accepting not only that payment is due, but also that they should be evicted".¹²⁰

4.26 Creditors also expressed confusion as to the level of offer which should be considered reasonable and should therefore be accepted by them. More generally, there was a lack of understanding by creditors of the distinction between obtaining decree and enforcement of that decree. Many creditors appeared to believe that having decree pronounced in the action raised by them would automatically result in payment of the debt.¹²¹ Many were under the false impression that the court itself was responsible for enforcement and expressed disappointment and regret that, having incurred the expense of obtaining a decree, they did not automatically obtain payment.

4.27 The Hearing. The research studies found that creditors and debtors had different attitudes towards the court hearing, depending upon whether or not they were represented or whether they appeared in person. The research found that whilst most creditors either appeared or were represented, usually by a solicitor, at the hearing, the opposite was true of debtors. Indeed most debtors were absent at the hearing, a factor which some sheriffs reported as being likely to lead to the application for TTPD being refused.¹²² Where parties did decide to appear in person, many found the hearing difficult to cope with. This was particularly the experience of both debtors and individual, rather than corporate or commercial creditors. Sheriffs also indicated that party litigants had difficulties when they appeared in court. The difficulties were of two separate, but linked, kinds. In the first instance, parties often felt that they lacked the necessary knowledge and understanding of the 1987 Act, and of the court process, which would make their appearance meaningful. Secondly, and no doubt one consequence of lack of knowledge, parties tended to find the court experience intimidating and personally distressing.

4.28 In terms of how cases were dealt with at the hearing, both creditors and sheriffs alluded to one particular practice in relation to disposal of applications. Both categories of interviewee referred to a ‘rule of thumb’ which, although not universal, led sheriffs to decline applications for TTPDs where the offer made would not result in the debt being paid off within two years. Sheriffs also conceded that the fact that the creditor rejected the debtor’s offer weighed heavily with them in deciding whether or not to grant a TTPD. Of the study sample, around 67% of TTPD applications made by debtors were rejected at the hearing stage.

4.29 Implementing TTPDs. There is no statistical information available as to the success of TTPDs. It is not, therefore, possible to provide objective evidence as to how many debtors maintain the payments required by the TTPD.

4.30 A specific criticism was expressed by creditors in relation to how quickly they were able to use diligence after the breakdown of a time to pay arrangement. As noted above,¹²³ diligence may be used where a debtor is in default in relation to a time to pay arrangement, that is where the debtor has failed to pay two instalments and a third is due. The actual timescale in which default can be established will, therefore, depend on the terms of the TTPD. Where weekly instalments are specified, default may be established in as little as three weeks while in the case of monthly instalments a creditor may have to wait three months before commencing diligence.

Research Results on TTPOs

4.31 Many of the issues which were raised by the evaluation in relation to TTPD were also relevant to TTPOs and do not bear detailed repetition.

4.32 Of particular note, however, was the finding that the uptake of TTPOs by debtors was found to be much poorer than the uptake of TTPDs. The analysis of the Civil Judicial Statistics for the years 1989-1993 estimated that on average only 250 applications for a TTPO were made in a year,¹²⁴ compared to an average of around 18 000 applications per year for TTPDs over the same period.¹²⁵ Again, like applications for TTPDs, where applications for TTPOs were made the majority of those applications were successful.¹²⁶

4.33 Low take up of TTPOs. The reasons for low uptake of TTPOs were, again, based on lack of knowledge although it would appear that ignorance of TTPOs is significantly worse than that which exists in relation to TTPDs. The Study of Debtors reported that of those debtors who were interviewed, "of the respondents who had not applied for time to pay orders, none were aware that they could make such an application to the court".¹²⁷ In addition to lack of knowledge on the part of debtors, the research findings suggested lack of awareness on the part of creditors and advice workers. This lack of awareness appeared to both cause, and be a consequence of, the small numbers of applications which are made each year.

Time Orders under the Consumer Credit Act 1974

4.34 As noted in Part 3, the 1974 Act was intended to establish, "for the protection of consumers",¹²⁸ a new system of licensing and control of those engaged in the provision of credit. A central element of the Act was provision for the judicial control of credit and hire agreements. Amongst the powers of the sheriff, in relation to regulated consumer credit or consumer hire agreements, is the power to make a TO in certain circumstances, e.g. where the debtor has defaulted in respect of his obligations under the agreement.¹²⁹

4.35 A TO is like a TTPD or TTPO inasmuch as it may provide for the payment by the debtor of any sum owed under the relevant credit agreement by instalments. A TO may also allow the debtor time to remedy non-monetary breaches of a consumer credit or consumer hire agreement.¹³⁰ While a TO is in place the creditor may not take certain types of action against the debtor, e.g. terminate the credit agreement, demand early repayment or recover possession of goods or land.¹³¹

4.36 Where a TTPD or TTPO has been made under the 1987 Act, a TO under the Consumer Credit Act 1974 cannot subsequently be made in respect of the same debt.¹³² Applications for TOs are extremely uncommon. It has been suggested, however, that there is increasing interest in the use of such orders as a result of the proactive approach of money advice and voluntary agencies advising debtors to pursue TOs. Numbers of applications for TOs are unknown as they are not recorded separately in the Civil Judicial Statistics.

4.37 Under the rules of procedure governing applications for TOs under the 1974 Act, such applications fall to be dealt with as summary applications.¹³³ As such, service or intimation of the application remains the responsibility of the pursuer.¹³⁴ Despite this rule, it has apparently become accepted practice in some courts that sheriff clerks would serve these applications but this is not, however, universally applied with some sheriff clerks having been known to refuse to serve applications as there is no procedural obligation to do so.

4.38 Unlike the 1987 Act, neither the 1974 Act nor the procedural rules governing summary applications provide for lay representation of debtors applying for TOs. The general rules of audience in the sheriff court therefore apply, namely that parties may represent themselves or be represented only by an advocate or solicitor. However again, although the correct legal position is that lay representation is not provided for in the case of applications for TOs, practice appears to have been inconsistent. Lay representatives report having appeared in some cases for applicants for TOs but having been refused permission to appear in others.

Policy Issues and Proposals for Reform

4.39 Opportunities for debtors to extend or defer time to pay are a valuable means of debtor protection as well as a means of enabling creditors to obtain payment of debts albeit, at a later stage, which could otherwise not be payable immediately. Proposals for reform are set out which will improve application of the time to pay arrangements generally and particularly in relation to single debts. In the case of multiple debts, further improvement will also be achieved by the proposals which follow in relation to a debt arrangement scheme which it is anticipated will be the preferred course for those in multiple debt, as had been the Scottish Law Commission’s original intention.

4.40 There are a number of possible improvements to the current system which would require changes to existing legislation. Others could be achieved administratively. The Executive’s proposals for both such measures are outlined in the paragraphs which follow.

The TTPD Application Process

4.41 The research evaluation reported that creditors are sometimes unsure of what constitutes a reasonable offer by a debtor, partly as a consequence of not having full details of the debtor’s financial circumstances. Currently, the financial information which a debtor volunteers as part of his application for a TTPD is available at the sheriff court where they may be inspected by the creditor. The Scottish Law Commission recommended that the clerk of court should automatically send the creditor a copy of the debtor’s completed application form for a TTPD or TTPO.¹³⁵ Although it might reasonably be anticipated that existing instances when an application would be made might reduce, having regard to proposals which follow for a debt arrangement scheme, changing the procedure would place an additional burden on the courts. Accordingly, it is, instead, considered appropriate that creditors should be offered the option, on lodging their summons, of paying an additional nominal fee which would entitle them to receive, by post, details of any offer for payment made by the debtor and the debtor’s financial circumstances.

4.42 The importance of access to information was discussed in Part 3. It is intended that the application forms for TTPDs should be revised to enable debtors to provide more detailed information about their financial position.

4.43 It was noted that debtors may not learn whether their application for a TTPD has been accepted until the day before the hearing. This timescale can impact upon a debtor’s ability to prepare and attend the hearing and should ideally be reformed to give the debtor more notice of the hearing. This was reviewed recently by the Sheriff Court Rules Council as part of their general review of the rules of court. It was considered necessary to retain the seven day period, between the time when any offer should be made and the hearing before the court, for reasons of speed and consistency within the court processes. The question of whether the debtor should, in turn, be informed of the creditor's response was also considered. On balance, it was decided that it would be in the parties' interests to leave the onus on them to check the position of the other side.

Q. 4A. 1 Should creditors be offered the option, on lodging their summons, of paying an additional nominal fee to receive, by post, details of any TTPD offer for payment made by the debtor and the debtor’s financial circumstances ?

Q. 4A. 2 Should application forms for TTPDs be revised to enable debtors to provide more detailed information about their financial position?

Q. 4A. 3 (a) Should the rules relating to TTPDs be revised to require acceptance to be notified several days prior to the hearing?

(b) If so, what period would be appropriate?

Grant of TTPDs not Linked to Decree

4.44 As has been noted, the application for a TTPD takes place as part of the process for granting decree against the debtor. Sometimes debtors and their advisors are not aware of this, which can have adverse consequences in actions for eviction. It is proposed that this could be tackled in one of two ways. The rules relating specifically to actions for eviction could be amended to make clear that an application for time to pay in such an action relates solely to the repayment of rent arrears and not to the eviction itself. This would, however, heavily penalise creditors with a legitimate claim to evict who would be prevented from recovering possession of their property and may not receive current rent whilst the arrears were being paid off. It would open the potential for abuse. Alternatively, the concern could be tackled as part of an information and education strategy to raise awareness of the consequences amongst debtors and their advisers.

4.45 It was also considered whether, more generally, an application for a TTPD should not result in decree against the defender but, instead, a sist whilst a TTPD is in force. This would be burdensome on creditors who should be entitled to proceed speedily to enforce where the opportunity given to debtors for time to pay has not succeeded.

Guidance about Factors for Granting TTPDs and TTPOs

4.46 It seems clear from the research evaluation that the wide discretion which sheriffs possess in considering whether or not to grant an application for a TTPD is already constrained by practices which have developed since the introduction of the 1987 Act. In particular, creditors and sheriffs give particular weight to the length of time which would be taken to pay off the debt. By contrast, debtors may need guidance as to the factors which the court will consider relevant and upon which it will wish to be addressed. The Commission recommended the introduction of statutory guidance to assist sheriffs in deciding whether or not to grant a TTPD.¹³⁶ This guidance would make clear that the direction should be granted if it is reasonable in all the circumstances to do so. The guidance would also specify the factors which ought to be taken into consideration by the sheriff in disposing of TTPD applications. These factors would include the length of the proposed repayment period; the length of any original credit or loan agreement; the debtor’s financial position and the reasonableness of the creditor in his rejection of the offer.

4.47 The new statutory test which it is proposed should govern whether or not a TTPD is granted should also apply to TTPOs.

Q. 4A. 4 (a) Should statutory guidance be introduced to specify the factors which ought to be taken into consideration by the sheriff in disposing of TTPD and TTPO applications?

(b) If so, should any other factors than those mentioned be taken into account?

TTPO Information and Application Forms

4.48 There is no reason in principle why debtors should not automatically receive an application form and relevant literature informing of their rights in relation to TTPOs. Indeed, to make this information available automatically would be consistent with the practices which operate in relation to TTPDs. The Commission recommended that a charge for payment served on a debtor who is eligible to apply for a TTPO should be accompanied by a note explaining TTPOs and an application form for an order.¹³⁷ It also recommended that other documents served or intimated to the debtor during the course of diligence should contain a similar note and an application form.¹³⁸ It justified these recommendations on the ground that "where a debtor is given a right as a measure of debtor protection, the legal system should strive to make that right a meaningful one".¹³⁹ It is intended to implement the Commission’s recommendation.

Q. 4A. 5 Should a charge for payment served on a debtor who is eligible to apply for a TTPO, and other documents served or intimated to the debtor during the course of diligence, be accompanied by a note explaining TTPOs and an application form for an order?

TTPO Available after TTPD

4.49 The rule which prohibits the granting of a TTPO in cases where a TTPD had already been granted was based on a specific Commission recommendation. It had been argued that such a provision was desirable, in fairness to creditors, and to encourage debtors to observe the terms of time to pay decrees and orders.¹⁴⁰ Indeed, in its 2000 Report,¹⁴¹ the Commission reaffirmed its view that TTPOs should not be available where a TTPD has already been granted.¹⁴² However, the rule cannot take account of the individual circumstances of debtors and, as has been noted, "somewhat unfairly perhaps a debtor who was granted a time to pay direction or order which was recalled when financial circumstances improved is unable to reapply if they deteriorate again".¹⁴³ It is considered that the absolute rule against the granting of a TTPO to a debtor who has already enjoyed the protection of a TTPD may cause unnecessary hardship to some debtors whose circumstances change through no fault of their own and should be abolished. A new statutory test, governing whether TTPO should be granted, should allow a sheriff to consider, as one factor among many, whether a prior TTPD has been in force and the reasons why its terms have not been adhered to.

Q. 4A. 6 Should the absolute rule against the granting of a TTPO to a debtor who has already enjoyed the protection of a TTPD be retained?

4.50 There are also a number of possible changes to the current system which could be taken forward administratively. The Executive’s principal proposals for improvement are outlined in the paragraphs which follow.

Information and Publicity

4.51 TTPDs can improve a debtor’s situation by allowing him to repay his debt safe in the knowledge that diligence cannot be used against him. Debtors should, therefore, be encouraged to use TTPDs. Some improvements in uptake could be achieved by non-legislative means, by encouraging better use of existing provisions. It must, however, be accepted that, even with very good information and publicity, some debtors will choose to ignore a summons served upon them or decide not to apply for a TTPD. Indeed, it would seem that the decision not to apply for a TTPD may in some cases be part of an overall debt management strategy or a deliberate choice by debtors who wish to reserve their right to apply for a TTPO at a later stage. Nonetheless, the information which is available ought to explain clearly the options available to debtors and the consequences of each possible course of action.

4.52 The style of the summons which is currently served upon defenders was devised in consultation with advice agencies.¹⁴⁴ The Sheriff Court Rules Council has recently reviewed the forms of summons in summary cases and small claims and accompanying guidance leaflets in consultation with advice agencies. It should be clear to defenders from these that, an application for a TTPD involves accepting that decree will be pronounced against them.¹⁴⁵ The guidance also advises debtors that, although the TTPD will protect them from the use of diligence, the decree can have other collateral effects, such as credit black-listing. This could be reinforced within the general information and education programme already discussed.¹⁴⁶

4.53 It seems clear from the research evaluation that the availability of good advice and/or representation at a hearing contributed to the success of parties pursuing or defending actions for payment. It is important, therefore, that debtors be encouraged to appear or be represented at court.

4.54 Of particular interest in the context of debt recovery is the In-Court Advice Pilot Project which has operated at Edinburgh Sheriff Court since 1997. This project involves free access to advice and representation services to unrepresented parties by a legally qualified solicitor and lay advisers, who are based in the sheriff court but not employed by it, offering assistance. The advisers do not normally appear in court on behalf of a party but offer advice and support to those who wish to appear themselves. Advisers also liase with other agencies, such as housing departments, where appropriate. The project is currently fully funded by the Executive.¹⁴⁷

4.55 A 1999 research Report, which assessed the project, found it to be successful in providing advice to large numbers of court users and to be welcomed by, amongst others, sheriffs and court staff.¹⁴⁸ Whilst making no formal recommendation concerning the project, the Scottish Law Commission stated that it was, "firmly of the opinion that the extension of this scheme would lead to an increase in the awareness of time to pay measures and in the number of measures granted".¹⁴⁹ It is understood that further research will be published imminently. In the Report Striking the Balance,¹⁵⁰ it was recommended that the Executive should consider rolling out the in-court adviser service at Edinburgh sheriff court more widely across Scotland.

4.56 The Executive is currently considering the policy position to be taken regarding any extension of the pilot in the context of its work on development of a Community Legal Service in Scotland. The Working Group on Review of Legal Information and Advice Provision in Scotland made a number of recommendations in its Report, including further consideration of the role of non-lawyers in advice provision.¹⁵¹

Education Strategy

4.57 As with TTPDs, the perceived difficulties with the operation of TTPOs relate primarily to non-use of the provisions of the 1987 Act. As ignorance appeared to be the major reason for this non-use, steps should be taken to improve the use of the existing provisions of the 1987 Act in relation to TTPOs. Greater publicity for TTPOs, including publications aimed at advice agencies and guidance to sheriff clerks, who are obliged to assist debtors complete applications for TTPOs, should be undertaken. This should be a further role for the Scottish Civil Enforcement Commission.

Q. 4A. 7 Should further information and publicity about TTPDs and TTPOs, be included within the Scottish Civil Enforcement Commission's general information and education strategy?

TOs under the 1974 Act

4.58 The provisions of the 1987 Act governing service by the sheriff clerk of applications for time to pay and lay representation at hearings were instituted as part of a series of reforms designed to improve debtor protection. The lack of similar protection under the 1974 Act for applicants for TOs can be viewed merely as an accident of history since increased awareness of the need for procedural reforms to assist debtors did not result in general legislative reform until nearly a decade later.

4.59 Executive policy favours treating 1974 Act TOs and 1987 Act time to pay measures on an equal footing. The objective of all time to pay measures is debtor protection and, as noted by the Commission, "where a debtor is given a right as a measure of debtor protection, the legal system should strive to make that right a meaningful one".¹⁵² The Executive and the Scottish Parliament recognised the similarity of orders under both Acts by raising the upper limit for time to pay applications under the 1987 Act to debts of £25 000 ¹⁵³ in line with the 1974 Act following a recommendation by the Commission.¹⁵⁴

4.60 It is one of the Executive’s policy objectives that rules should be as consistent and coherent as possible. In respect of lay representation, it has been argued that the rules regarding representation in applications for time to pay arrangements under the 1987 and 1974 Acts should be the same. At present, an individual who could be accepted as a lay representative in a time to pay hearing under the 1987 Act, regarding a sum of as much as £25 000, could be refused permission to represent in a time order application under the 1974 Act for a sum as little as £250.¹⁵⁵

4.61 However as already noted, whilst the 1974 Act applies to Scotland, it is not thought that the Scottish Parliament has legislative competence to bring the procedures under the 1974 Act into line with those under the 1987 Act because the subject matter of the 1974 Act is reserved to the UK Parliament.¹⁵⁶ Legislation for reform should, therefore, be brought before the UK Parliament. The Executive has been advised by the Department of Trade and Industry that it plans to conduct a wide ranging review of the subject matter of the 1974 Act.

Q. 4A. 8 Should the rules regarding representation in applications for time to pay arrangements be the same under the 1987 and1974 Acts?

Q. 4A. 9 Should similar protections in the 1987 Act, for service by the sheriff clerk of applications for time to pay and lay representation at hearings, be extended to the 1974 Act?

(B) MEASURES TO ASSIST UNREPRESENTED PARTIES

4.62 The 1987 Act also included provisions which were intended to make it easier for both creditors and debtors to participate in the debt recovery process. Most attention was given to making procedures more straightforward for debtors, as it was felt that they had been most disadvantaged under the previous arrangements. In the recognition that most debt actions related to relatively small sums of money, it was also thought desirable that the process of debt recovery should be as simple, cheap and fast as possible.¹⁵⁷ These aims were achieved in the following ways.

Summary of Current Law

Financial Arrangements

4.63 Fees and Expenses. The Commission had recognised in its 1985 Report that debtors in particular were deterred from using the courts to defend claims against them, or to apply for protections such as an instalment decree, because of the cost of doing so. The Commission, therefore, made recommendations in relation to two separate types of cost which the debtor might incur. Firstly, in most court proceedings there are fees charged by the court itself in connection with various procedural steps such as applications made and documents lodged. Secondly, as a general rule in legal proceedings, the party against whom decree is made is required to pay the expenses of the successful party. The Commission recommended that this rule cease to apply in connection with applications made by the debtor under the 1987 Act. The purpose was that "a debtor making an application for say a time to pay order would not be faced with the possibility of having to meet the expenses of a legally represented creditor who successfully opposed it."¹⁵⁸

4.64 The 1987 Act implemented the Commission’s recommendations and provides that no fees shall be payable by a debtor in connection with certain proceedings under the Act.¹⁵⁹ Broadly speaking, this means that the debtor will not pay a fee to the court for making an application for a time to pay direction or order, or for objecting to the application of another person, or in respect of a hearing held in connection with any such application or objection. The 1987 Act introduced a general rule that, as between debtor and creditor, neither would be liable to the other in respect of the expenses incurred in connection with time to pay proceedings under the Act.¹⁶⁰

4.65 Legal Aid. A solicitor may provide advice and assistance under the legal aid scheme on any matter of Scots Law if the client is eligible. However, the 1987 Act excluded proceedings under it from civil legal aid.¹⁶¹ It seems that the rationale was that the issues involved did not require the professional skills of lawyers and should be capable of being satisfactorily resolved by party litigant procedure. Also that the time to pay measures would slow down the progress of diligence but if they could be dispatched promptly the resultant delay would not seriously endanger debt enforcement. There is no such bar to third parties affected by the 1987 Act obtaining civil legal aid, subject to the usual restrictions.¹⁶²

Representation and Assistance

4.66 Lay Representation. The 1987 Act made provision for parties to be represented in proceedings under the Act by persons who were neither solicitors nor advocates.¹⁶³ The intention was to encourage greater use of lay representation, such as debt counsellors and advice workers on behalf of debtors and credit control personnel on behalf of pursuers.

4.67 Role of the Sheriff Clerk. The 1987 Act imposed a number of duties on sheriff clerks in relation to assisting parties participating in the debt recovery process. In particular, a specific duty was imposed upon sheriff clerks requiring them, in response to a request for assistance by a debtor, to provide information as to the procedures available under the Act and to assist in the completion of forms required in connection with proceedings under the Act.¹⁶⁴ This general duty is amplified in relation to applications for TTPO, the sheriff clerk being obliged to assist the debtor to complete the form "in accordance with proposals for payment made by the debtor".¹⁶⁵

4.68 Forms and Documentation. In its 1985 Report the Commission commented that "We envisage that the forms and procedures would be kept simple and that the procedure should be capable of being initiated and pursued with the help of the court by ordinary persons unfamiliar with court procedures, including persons of lower than average capacity in managing their affairs".¹⁶⁶ In particular, the Commission recommended that the forms which would be served on or used by debtors should be in, "simple and intelligible language"¹⁶⁷ and that the forms served on debtors should inform them of their rights to apply for, for example, a time to pay direction.

Principal Research Findings

Financial Arrangements

4.69 The research into the operation of 1987 Act suggested that the measures introduced by the Act in relation to costs were not a significant factor affecting the behaviour of debtors. The evaluation acknowledged that no debtor interviewed as part of the research programme mentioned the measures as having encouraged them to use the protections available under the 1987 Act.¹⁶⁸ However, some debtors did feel that even the restricted categories of expenses which could be recovered under the Act had caused them financial hardship. No creditor interviewed as part of the study reported having been influenced by the rule against expenses in deciding whether or not to raise proceedings.

Representation and Assistance

4.70 Representation. It has already been noted that the availability of advice to parties increased their chances of success when using the provisions of the 1987 Act. However, there is no necessary link made between the provision of advice and representation. The research found that overall "pursuers were more likely than defenders to employ legal representation and less likely than defenders to be absent from a hearing".¹⁶⁹ Overall, of the sample of actions surveyed, 94% of pursuers were represented by a solicitor whilst only 56% of defenders had such representation. More than a third of all debtors were absent from the hearing of their action, whilst less than 0.5% of defenders obtained the services of a lay representative. Debtors themselves reported their reluctance to represent themselves and their view that without representation of some kind their chances of success were negligible. Creditors also appeared to value representation, as evidenced by the extremely frequent use of solicitors, but only two commercial creditors who were interviewed reported representing themselves.¹⁷⁰

4.71 Role of sheriff clerks. The research reported that only a handful of the debtors interviewed had used court staff as a source of advice or information. It noted that, although satisfaction with the particular member of staff used had varied from debtor to debtor, all "did view the court as being an important provider of information".¹⁷¹ Of the individual, rather than commercial, creditors interviewed, most found court staff helpful and the information obtained from the court useful.¹⁷² The court staff interviewed as part of the research evaluation were not found to have experienced particular difficulties in respect of their duties under the 1987 Act, although they did report increased workload as a result of the Act. Partly because many staff then appeared to have no experience of enquiries under the 1987 Act, the research found that, "the knowledge and views [of court staff] were less comprehensive than expected".¹⁷³

4.72 Forms and documentation. The research found that a majority of those debtors interviewed had experienced difficulty understanding the paperwork which was integral to the action against them. Debtors reported their failure to appreciate the significance of the summons and the importance of responding to it. However, those debtors who had applied for a time to pay direction were by and large satisfied with the format of the application. As already noted, there was a feeling that the forms ought to allow greater detail of a debtor’s financial position to be provided.¹⁷⁴

¹⁰⁸ Scot Law Com No 95.
¹⁰⁹ 1987 Act, s1(1).
¹¹⁰ A.S. 2002/132 , A.S. 2002/133 which will come into force on 10 June 2001.
¹¹¹ 1987 Act, s5(4)(b).
¹¹² Overview, p 18, para 7.
¹¹³ Survey of Payment Actions in the Sheriff Court, p 24, para 18.
¹¹⁴ Ibid , p 29, Table 23.
¹¹⁵ This view was often formed as a result of having unsuccessfully tried to make informal arrangements with the creditor prior to court action having been raised.
¹¹⁶ Study of Debtors, pp 27-28, paras 11-12.
¹¹⁷ Ibid , p 32, para 33.
¹¹⁸ Study of Facilitators , p 17, para 20.
¹¹⁹ Save that many wished more space to provide additional details of their financial position.
¹²⁰ Scottish Association of Law Centres, Manifesto for Change , dated June 1999, para 4.4.
¹²¹ Study of Individual Creditors, p 23, para 9.
¹²² Study of Facilitators , p 76, para 23.
¹²³ Para 4.11.
¹²⁴ Analysis of Diligence Statistics, p 12. Although this represents the average number of applications per annum over the relevant period, the actual number of annual applications declined steadily between 1989 and 1993.
¹²⁵ Ibid , p 10, Table 2A.
¹²⁶ Ibid , p 12, Table 5.
¹²⁷ Study of Debtors, p 60, para 77.
¹²⁸ 1974 Act, Long Title.
¹²⁹ Ibid , s129.
¹³⁰ See para 3.31-3.33.
¹³¹ 1974 Act, s130.
¹³² 1974 Act, as amended by the 1987 Act, Sch 6.
¹³³ A.S. 1985/705.
¹³⁴ A.S. 1999/929.
¹³⁵ Scot Law Com No 177, para 5.33.
¹³⁶ Ibid , para 5.42.
¹³⁷ Ibid , para 5.27.
¹³⁸ Ibid.
¹³⁹ Ibid , para 5.26.
¹⁴⁰ Scot Law Com No 95, para 3.65.
¹⁴¹ Scot Law Com No 177.
¹⁴² Ibid , paras 5.19-5.22.
¹⁴³ Dr David Nichols, The Debtors (Scotland) Act 1987 , (1987) (annotations), s5(4)(b).
¹⁴⁴ Citizens Advice Scotland, Money Advice Scotland, Trading Standards Central, In Court Advice Project, Scottish Consumer Council, Sheriff Court Users Group and the Scottish Association of Law Centres.
¹⁴⁵ Although see the proposal at para 4.44.
¹⁴⁶ See paras 3.108-3.109.
¹⁴⁷ Through Edinburgh Central Citizens Advice Bureau.
¹⁴⁸ Supporting Court Users.
¹⁴⁹ Scot Law Com No 177, para 5.28.
¹⁵⁰ Para 102.
¹⁵¹ Review of Legal Information and Advice Provision in Scotland , November 2001.
¹⁵² Scot Law Com No 177, para 5.26.
¹⁵³ The Debtors (Scotland) Act 1987 (Amendment) Regulations 2000, (SSI 2000/189), reg 2.
¹⁵⁴ Scot Law Com No 177, para 5.18.
¹⁵⁵ Sheriff Court Users Group, August 2000.
¹⁵⁶ 1998 Act, Sch 5, sC7.
¹⁵⁷ See for example, Scot Law Com No 95, paras 2.134-2.139.]
¹⁵⁸ Ibid , para 9.37.
¹⁵⁹ 1987 Act, s96(1).
¹⁶⁰ Ibid , s92(1).
¹⁶¹ Other than under ss 1(1) and 3(1) for applications regarding time to pay directions; Legal Aid (Scotland) Act 1986, c47, Sch 2, Pt II, para 4.
¹⁶² 1987 Act, s98.
¹⁶³ Ibid , s97.
¹⁶⁴ Ibid , s96(2).
¹⁶⁵ Ibid , s6(2).
¹⁶⁶ Scot Law Com No 95, para 2.136.
¹⁶⁷ Ibid, para 2.137.
¹⁶⁸ Overview, p 18, para 7.
¹⁶⁹ Survey of Payment Actions in the Sheriff Court, p 20, para 8.
¹⁷⁰ Survey of Commercial Creditors , p 86, para 17.
¹⁷¹ Study of Debtors, p 69, para 12.
¹⁷² Study of Individual Creditors , p 27, para 29.
¹⁷³ Study of Facilitators , p 85, para 4.
¹⁷⁴ Scot Law Com No 177, para 5.31.

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