Trusts, Trustees and Interim Diligence

It used to be fairly easy in Scotland for pursuers in a court action to obtain diligence on the dependence of the action. This would mean that they were given the right to arrest or inhibit the defender’s assets being disposed of (apparently to protect their enforcement prospects, in the event they were successful in the court action).

Things changed in the early part of the 21st Century, when the courts began to have cognisance of ECHR arguments. Matters were further changed by the Bankruptcy and Diligence etc (Scotland) Act 2007 which introduced new sections 15A – 15N to the Debtors (Scotland) 1987. In short, diligence on the dependents of an action (whether interim attachment, arrestment or inhibition) is now not obtainable as a matter of course.

The law now is (and given the substantial tactical advantage sometimes conferred on a pursuer, this is in our opinion quite fair) that diligence on the dependence of an action will only be allowed where:

“the creditor has a prima facie case on the merits of the action; …… there is a real and substantial risk enforcement of any decree in the action …… would be defeated or prejudiced by reason of ….. the debtor being insolvent or verging on insolvency …..or the likelihood of the debtor removing, disposing of, burdening, concealing or otherwise dealing with all or some of the debtors assets.”

There is also a catch all test to the effect that it has to be reasonable in all the circumstances.

There are now various protections built in, so that if because the court was satisfied it was in the interests of justice for this to happen, an application is granted without the debtor being represented, there is automatically a hearing fixed so that the debtor can argue that the interim diligence ought to be recalled. At that hearing, the onus is still on the creditor to satisfy the court that they have made out the statutory grounds. In this context, quite differently from certain other scenarios, a prima facie case does not just mean an arguable case but in general terms has to be a reasonably good case (although not clearly guaranteed).

Against that backdrop, we were interested to note the decision of Lord Malcolm in the case Glasgow City Council v The Board of Managers of Springboig St Johns School and another, which was decided at the end of March and reported a few days ago.

In this case, Glasgow City Council are suing for £4.7milion against the board and managers (and the sole remaining board member) of a specialist school which provided care and education for “troubled young people who were placed there by local authorities, with local authorities paying fees in return.” Effectively, in short, employees of the school were eventually able to join a predecessor pension fund to that now operated by the local authority. It is alleged that the school board were liable to make a cessation payment in relation to its prospective liabilities under the pension fund. There is only one significant asset of the board, comprising land in Glasgow, said to be worth over £1million.

It seemed to be accepted that the Trustees of the site intended to market and sell it. Glasgow City Council therefore sought interim diligence on the basis that there was a real and substantial risk that enforcement would be defeated if the trustees sold the subjects – their position was that the board and managers had no right from the sums raised from the property sale.

Although, on the face of it, it is quite a narrow point, any lawyer involved with Trusts, should take the time to read the decision. The board and managers argued that the heritage was held by a “separate juristic entity.” Namely the Trustees, which were separate in law from the board and managers. It was said that while the remaining member of the board was also sued as a trustee none of the other Trustees were joined to the action.   For the council, it was observed that the board and managers were insolvent and it was simply argued the subjects were dedicated to trust purposes and were put under the management of the board, whose members were Trustees.

Ultimately, Lord Malcolm disagreed with what was said for the board of managers. He found that a trust was not a separate juristic entity. He held “trust property is immune to and cannot be attached to in respect of a Trustee’s personal debt, not because it is owed by the trust, but because the Trustee owns qua trustee; which is another way of saying it falls in to his trust patrimony, not his personal patrimony. We all have a bundle of rights and liabilities, in the broadest sense, but a trustee gains an additional and separate bundle, which can be regarded as his trust patrimony. That trust patrimony may include both trust property and trust liabilities incurred to trust creditors. It is unlikely that the various managers of the school considered they were undertaking a personal liability…….”

Lord Malcolm went on to conclude that the Trustees would have understood that the board of managers, who were a group of Trustees would incur liabilities and there was therefore at least a prima facie case that the trust estate was liable for the debt. It is an interesting case, at least for lawyers, and the full arguments will be worth reading if the case goes to proof.

However, it is of particular interest because it is a trust situation where interim diligence has been granted.

BBM have experience of advising Trusts and Trustees, in relation to court proceedings and disputes.

Contact Eric Baijal at emb [AT] bbmsolicitors [DOT] co [DOT] uk or Alasdair Baijal at agb [AT] bbmsolicitors [DOT] co [DOT] uk