Scotland is freezing

Mention the Human Rights Act 1998 to most people, and it's likely you will conjure up images of prisons, protest marches and Big Brother (in the Orwellian sense, of course). But Scottish litigation procedures? Probably not.

However, the reality is that one of the HRA's most significant effects on Scottish commercial life has been the blow struck against "diligence on the dependence" or, in more familiar terms, arrestments and inhibitions on the dependence. The importance of this for the Scottish construction industry, and anyone else doing business in Scotland, should not be underestimated. An explanation of what these rather mysterious sounding processes can actually accomplish highlights why this is so.

A claimant in a Scottish court action (known as a pursuer) can generally seek security for its claim before final judgment – or "on the dependence" – of the action. One kind of diligence, known as inhibition, prevents a defender from disposing of its heritable (or real) property. An arrestment, on the other hand, can freeze money owed to the defender, for example by an employer, funder or developer. Similar processes are available in England after judgment, but are much more difficult to implement.

It is not difficult to imagine the potential consequences of these procedures for a financially straitened defender. Anecdotal evidence certainly suggests that badly timed arrestments have sometimes played a large part in businesses entering into receivership or liquidation.

The potential bite of arrestments and inhibition is not confined to purely Scottish enterprises. As long as an action can be raised in Scotland, diligence on the dependence will, generally speaking, be available. A place of business in Scotland would allow a party to be sued there regardless of whether it has a more permanent connection elsewhere. This has on more than one occasion alarmed those encountering a Scottish court action for the first time.

As Building readers may recall, it was held in the 2002 case of Karl Construction vs Palisade that the procedure for inhibitions contravened the requirement in the European Convention on Human Rights that individuals and limited companies should be entitled to peaceful enjoyment of their property. The convention is of course incorporated into UK law by the HRA.

The general reasoning in Karl was extended to arrestments in later decisions. As a result, diligence on the dependence has been more difficult to enforce and become far less common. Gone are the days when a pursuer was permitted to inhibit or arrest via a simple rubber-stamping exercise carried out in court when an action commenced. Since Karl, a hearing has been required where, among other tests, a court had to be persuaded that there was a clear risk of the defender falling into insolvency.

To many in the construction industry with bad memories of indiscriminate "scattergun" diligence and suffocation of income, this development was good news. For would-be pursuers, however, a valuable litigation tool had been blunted.

But is all this about to change? In Advocate General for Scotland vs Maureen Taylor, the Inner House, Scotland's Appeal Court, held that the current procedures for arrestments and inhibitions do indeed contravene the HRA, but that the tests set out in Karl are not appropriate. Although there will, in future, be some judicial scrutiny of applications to arrest or inhibit, it seems that there will be no need to prove that diligence on the dependence is actually necessary or that there is a risk of defender insolvency. A pursuer need only establish a prima facie case against a defender. The Inner House did, however, say that the diligence had to be "proportionate to the claim". Exactly what this will mean in practice remains to be seen.

The result? Diligence on the dependence will be easier to obtain than in the post-Karl environment. The relevant Rules of Court have already been changed to reflect the decision in the Taylor case. This may result in a comeback for inhibitions and arrestments, which would coincide with increasingly difficult economic conditions for many businesses.

As for the HRA, it remains to be seen how many other long-established court procedures and rules it will influence in unexpected ways. Further attempts to rely on its provisions – with varying degrees of creativity – appear inevitable.