Commercial Law – Enforcement – Not Quite All Change

Introduction

Since 1998, the Lord Chancellor’s Department (“LCD”) has been conducting a Civil Enforcement Review. On 26th March 2003, it finally published its White Paper, pithily entitled, “Effective Enforcement: Improved methods of recovery for civil court debt and commercial rent and a single regulatory regime for warrant enforcement agents”.

The White Paper is of little concern to those who litigate exclusively for and against companies. However, all commercial litigators who ever find themselves dealing with private individuals should be familiar with it as the legislation eventually introduced by the Government will probably be very little different from what is presently proposed. This is because the White Paper follows such a comprehensive and lengthy consultation process. Moreover, now is the last chance to persuade the LCD to adopt your pet proposal on enforcement and to abandon any foolish ones.

Data Disclosure Order (“DDO”)

Of most practical significance to litigators is likely to be the introduction of a new type of Order called a “Data Disclosure Order”. This is a procedure whereby a judgment creditor and/or its enforcement agent may obtain information about the judgment debtor from third parties, as to assets, employment, earnings and so on, so as to enable effective enforcement to take place. The White Paper envisages, in the first instance, that the third parties will be the Inland Revenue, the Department of Work and Pensions, credit reference agencies and “financial institutions”. However, as it goes on to say that banks and building societies are unlikely to be included for reasons of practicability, it is unclear what financial institutions the LCD has in mind.

One disappointing aspect of the proposed DPO is that, whilst an application for a DPO will normally, or at least frequently, accompany an application for default judgment, it appears to be assumed that it will normally be inappropriate for one to be made automatically, or almost automatically following a trial where the debtor has failed to pay in the 14 or 28 days allotted. All litigators are familiar with the defendant who drags the litigation out for years and then tries to do the same with the enforcement process by concealing, and being misleading about, his assets. However, what seems to be envisaged, in relation to judgments other than judgments in default, is that a DPO will normally be made only where some other enforcement procedure has failed, for example where there has been “wilful non-compliance” with an Order to seek information from Judgment Debtor. If this is correct, then the LCD would appear to have missed a trick. It would save an awful lot of time and money if the judgment creditor could obtain, virtually as of right, financial information about the debtor from third parties rather than having to try and squeeze it out of a reluctant, and possibly mendacious, debtor first.

Charging Orders

The biggest news so far as charging orders are concerned is that the LCD has not given into the demands of various debtors’ rights organisations to make substantial changes to the existing procedures. In particular, orders for sale are here to stay, as is the existing case law relating to them. For example, it is still going to be possible to get an order for sale even where the property in question is a ‘family home’: see Bank of Ireland Mortgages v Bell [2001] 2 All ER (Comm) 920.

The 3 changes to be made are:

1. enforcement by way of charging order will be permitted even where the debtor is not in instalments’ arrears;
2. the Court will be given a power to lift a charging order, as the debtor’s request, so as to facilitate sale of the property;
3. (somewhat ominously) the Lord Chancellor is to be given powers to restrict, by secondary legislation, the circumstances in which charging orders may be made. It is not proposed that the Lord Chancellor should use these powers in the foreseeable future.

Changes for enforcement agents

Various changes are proposed relating to enforcement agencies, which will probably be of interest only to those who advise them. In summary: the Security Industry Authority is to regulate all enforcement agents, public or private; there will be a single piece of legislation governing the actions of enforcement agents when they take control of goods; all enforcement fees are to be set by the LCD; “seizure” and “impounding” will be replaced by a single concept of “taking legal control”.

Other matters of note

• A uniform procedure for the registration of judgments in the High and County Court is to be introduced. It looks as if the High Court will adopt the County Court procedure.
• District Judges will be able to hear interpleader applications, with the County Court Manager becoming responsible for County Court Bailiffs.
• The changes to Administration Orders set out in the never implemented section 13 of the Courts and Legal Services Act 1990 have been abandoned and the Government will be looking to introduce a completely new scheme.
• Enforcement agents will be able to seize money (including cash), bills of exchange, promissory notes, bonds, specialties and securities for money.
• Where a debtor is arguing that particular goods should not be seized because they are part of the everyday necessities of life and those goods are particularly valuable, it will be permissible for the enforcement agent to replace those goods with cheaper versions of them.
• Crown priority and landlords’ distress for rent priority are to go.
• Distress for rent for residential premises is to go and there is to be a new recovery system for commercial rent arrears.
• There is to be a new, streamlined attachment of earnings procedure, with fixed percentages of earnings to be paid to creditors and a procedure for tracking debtors’ employment across the UK to be introduced.
• Joint accounts are to remain immune from Third Party Debt [Garnishee] Orders.

Watch this space

The White Paper mentions, in passing, two very important matters that are likely to have a very significant impact in the area of enforcement. The first is reform of the Consumer Credit Act, a Green Paper about which are expected within the year. The second is various proposals emanating from the EU: European Enforcement Orders; European Orders for Payment; the Council of Europe’s draft Recommendations on Enforcement. As and when a European Directive appears, it is going to be required reading for all commercial litigators.

Summary

A five-year consultation process has produced comparatively little proposed change to the way in which judgments against private individuals should be enforced. The introduction of Debtor Disclosure Orders will probably be the biggest change and the best news for commercial clients is that the LCD has resisted the temptation, at least for the present, to mess around with charging orders so as to make the process more ‘debtor friendly’.