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MSP John Wilson’s Draft Bill Proposal Before Its Time

It is with disappointment today I discovered John Wilson (Central Scotland MSP) has decided not to submit a final proposal for his private member bill the Proposed Enforcement of Local Tax Arrears (Scotland) Bill. The proposal was ahead of its time as it now transpires many local authorities are dusting off old poll tax bills from over 19 years ago  to  raise cash for their cash strapped budgets.

The bill, which related to council tax arrears proposed:

  • that local authorities should only be able to pursue council tax debts for five years, as opposed to the 20 years they are currently able to; and
  • that the summary warrant procedure used to constitute council tax debts, denying debtors a right to be a fair hearing,  should be abolished

The fact the bill will not be going forward in this session is a loss after being supported by Citizen Advice Scotland and Consumer Focus.

However, I would support its reintroduction in the next parliamentary session, but believe it should be strengthened to  ensure

  • that no debts, even once constituted by decree or its equivalent, including summary warrant, should be automatically enforceable after five years, without the permission of the court; and
  • that the summary warrant procedure should not be abolished, but a right of recall introduced.

I am hoping to write a paper on these proposals in the coming week and will post them on here.

New Scottish Repossession Laws May Help Clydesdale Bank Customers

New laws due to be introduced in September may provide some safeguard to the thousands of Clydesdale and Yorkshire Bank customers in Scotland who are now facing increased mortgage payments.

Up to 18,000 customers, it transpires, have been  paying too little for their mortgages, meaning they are unlikely to repay them within their agreed term. The problem arose after the banks tried to introduce new inhouse software to calculate customers mortgage payments, but it appears the banks have been underestimating the capital element of their customer’s payments. The error went unnoticed whilst interest rates were at a higher rate, but with the recent drop in the Bank of England’s base rate, the error has been discovered. The mortgages that have been affected are tracker and variable rate mortgages.

Although the Bank’s have claimed the majority of customers will only see increases of up to £25 per month, some customers have complained they have received letters stating their payments will  increase by up to £300 per month.

For many these increased payments will not be possible and may result in customer going into arrears and facing action for repossession. It is likely, however, the Banks will be under pressure to take steps to assists customers, possibly by extending the life of the mortgages due to new laws due to come into force in September.

Sheriff’s in Scotland, as a result of the new Home Owner and Debtor Protection (Scotland) Act 2010, will be required to consider whether lenders have taken reasonable steps to assist home owners in paying off any arrears owed before they raise action to repossess properties. In the case of these banks, due to the fact many customers will have been misadvised as to what their monthly payments would be, the Banks will be under pressure  to take steps to assist customers, possibly by extending the length of mortgages and allowing customers to continue making payments at reduced levels. If the Banks don’t, Sheriff’s may find that they have not taken reasonable steps to assist their customers.

Sheriff’s will not be able to force lenders to change the mortgage products customers have, but they will be able to look at the circumstances that caused the arrears and decide whether in individual cases the Banks should have their powers to repossess suspended, usually where the home owner is making serious attempts to repay arrears.

It also appears many customers may be entitled to raise complaints with the Financial Ombudsman Service or raise actions for compensation.

Clydesdale and Yorkshire Bank customers  should seek legal advice immediately where they are struggling to meet increased payments.

Scotland’s Debt Landscape Possibly Changing

Scotland’s Debt Landscape Possibly Changing

The recent statistics producced by the Accountant in Bankruptcy has shown that the Scottish debt landscape has begun to change.

The number of sequestrations (formal bankruptcies) in the first quarter of this year remained the same with the number for the previous quarter (3,139), but showed a 16 % decrease on the numbers from the same quarter last year.

A similar story can be told for protected trust deeds, with only 2,239 becoming protected in the first quarter, which although up 10 % on the previous quarter was down 13% on the same quarter for last year.

The real story, however, is the 495 debt payment programmes entered into under the Debt Arrangement Scheme, showing a 19% increase on the previous quarter and a 60% increase on the same quarter last year.

The Debt Arrangement Scheme is a statutory alternative to personal insolvency and allows debtor to repay their debts in full, whilst providing them with protection from their creditors. Importantly, it also avoids debtors having to realise assets and  allows interest and charges on debts to be frozen and eventually written off if the programme is succesfully completed.

Launched in October 2004, the scheme has had a troubled beginning with a poor uptake and problems with debtors unable to access it. This has largely been because access is exclusively through an approved money adviser and there has been a shortage of approved money advisers. This has now been partly solved with increased private sector involvement and it is now believe up to 10% of all applications may now be originating in the private sector. Concerns have, however, been raised in relation to private sector involvement with some private sector providers charging debtors up to £1,800 to access the scheme.

However, the increase in the number of the debt payment programmes may not just be a sign that debtors are keen to repay their debts, but that they have no other remedy available to them.

Those  who enter the Debt Arrangement Scheme have to have disposable income to make payments  and, therefore, it may be that increasing numbers of  white collar debtors may be using the Scheme where there has been a drop in the household income and they are unable to use personal insolvency as a remedy. This may be as in personal insolvency debtors are required to realise the value of  assets, such as homes and cars for the benefit of creditors. One of the advantages of the Debt Arrangement Scheme is that debtors do not normally have to realise their assets for the benefit of their creditors.

This creates a problem, however, for those debtors with assets, if they are unable to realise those assets (it may make them homeless or leave them unable to get back and forth to work), resulting in them having to enter repayment plans with their creditors that could take 10 years or more.

The Scottish Government will be introducing a new route into seqeustration also in October, which will allow debtors who cannot repay their debts as they fall due to apply for bankruptcy. This may result in an increase in the number of bankruptcies each year, but may equally result in a reduction in the number of protected trust deeds. In addition to this, the Government, as part of the new Act, will also be introducing new forms of protected trust deeds that will allow debtors to exclude their home from it, allowing them to keep it even though they are personally insolvent. This, however, is likely only to be  in cases where there are small amounts of equity in the home.

It is clear that Scotland’s debt remedy landscape  is now beginning to shift with one debt payment programme being entered into for every four protected trust deeds being signed. It could be tomorrows debtor landscape is one where there is more debt payment programmes and less personal insolvencies. It could also be with the decreasing number of personal insolvencies and increasing numbers of debt payment programmes, Scotland’s personal insolvency industry will now begin diversifying to offer the Debt Arrangement Scheme as one of the services they can offer.

Debt Arrangement Scheme

Accountant in Bankruptcy

Bank Charges Case is appealed to the ECHR

Bank Charges Case is appealed to the ECHR

 

Walls v Santanders UK PLC

A recent decision by Sheriff Cubie at Glasgow has destroyed any hope that Scottish bank customers will be able to use the small claims procedure to reclaim bank charges.

The fatal blow which prevents litigants using the procedure arose after the Sheriff agreed the case should be remitted to ordinary cause procedure due to it complexity.

Mrs Walls had raised an action using the small claims procedure to reclaim £3,000 of bank charges. Small claims procedure in Scotland allows litigants to claim up to £3,000 in the sheriff court, but importantly protects them should they be unsuccessful. Where the claim is for under £200, the fee for raising the action is £15. Where it is for more it is only £60. Even if the consumer is unsuccessful and expenses are awarded against them, where the claim is for more than £200, expenses are limited to £150 where the claim was for £1,500 or less and 10% of anything above that. This means normally a consumer risks only incurring expenses of £300.

However, by allowing the case to be remitted to ordinary cause, expenses can be unlimited meaning a consumer who raises an action for £3,000 could be faced with expenses of £10,000 or more where unsuccessful, particularly as the banks tend to be using senior counsel in such cases.

For many the risks in such cases will clearly be too high for consumers to risk raising such actions unless they have access to legal aid.

What is more worrying about this development is the banks are claiming the revised arguments used in such cases by Mike Daily, the principal solicitor of Govan Law Centre, which concerns amongst others the unfair relationship test, are too complex to be heard using the small claims procedure. This argument has been deployed after obiter comments by judges in the recent Supreme Court test case on bank charges. It was suggested although charges cannot be challenged on the basis of the level of the charges, they may still be challengeable by reference to the relationship between the lenders and borrowers.

The unfair relationship test was a new legal test introduced into the Consumer Credit Act 1974 by the Consumer Credit Act 2006. Its introduction was specifically to replace the extortionate credit test which had over 30 years prove to ineffective as a remedy to protect consumers.

There is now a suggestion, however, by Sheriff Cubie that it may not be appropriate to use small claims procedure when using the unfair relationship test due to its complexity. This could effectively deny Scottish consumers from not only raising actions to reclaim bank charges unless they can access legal aid, but also may eventually prevent them from being able to use the important unfair relationship test under the small claims procedure.

The implications of this decision to remit the case to ordinary cause, which Mike Daily had challenged on the grounds that it was a breach of Article 6(1) of the European Convention of Human Rights (right to a fair hearing), is that any wealthy defender may by forwarding spurious, but complex legal arguments deny consumers access to a fair hearing by remitting the case to the ordinary cause procedure. Although, it could be argued litigants will still have access to a fair hearing, if the risks of the costs heavily outweigh the amounts being claimed, most litigants will not raise actions. Some would argue banks are cynically betting on this. The result is the merits of the banks defence has still to be decided and are unlikely to be in this case as Mrs Walls has already indicated she will unlikely continue with the claim.

Furthermore, such tactics could also be used by banks whenever they raise actions against debtors for payment of money and the debtor intends to defend the action. The result: to frustrate debtor attempts to deny their liability for such debts.

Mike Daily has called for changes in the court rules so that when any action is raised in small claims, the rules relating to expenses should follow the action even if remitted to ordinary cause. Importantly, however, if there is an attempt to exclude the use of the unfair relationship test in small claim actions, then arguably the summary and ordinary cause rules should be altered to ensure regardless of what procedure  is used to raise an action, the level of expenses even in these actions should be restricted by the amount the action is for.

Anything less will leave scottish consumers exposed and vulnerable to spurious claims for money by wealthy creditors.

Mike Daily has now applied to appeal the decision of Walls v Santander UK PLC to the European Court of Human Rights.

However, despite the rejoicing of many creditors and recovery lawyers, Mike Daily has another bank charges case still in the courts. In the case of Sharp v Bank of Scotland, the consumer raising the action is entitled to legal aid and its likely the cases will be heard later this year and the merits of the banks defences will be considered.

The tragedy, however, will be even if Sharp is successful in reclaiming her bank charges, unless the court rules are changed, many consumers not entitled to legal aid, will be denied access to justice.

For more info see Govan Law Centre.

 

DEBT FREE DIRECT – REASONS TO BEWARE

DEBT FREE DIRECT – REASONS TO BEWARE

A classic example of the poor advice that debtors in Scotland are being provided by private debt management companies. After highlighting that Anderston in Glasgow has the highest level of personal debt in Scotland, with one in five adults having over £15,000 of debt (questionable source), they suggest that people consider an Individual Voluntary Arrangement (IVA). IVAs are an English law remedy and are not available to debtors in Scotland!

This only demonstrates that despite their fancy adverts and plush offices these firms have very little knowledge of Scots Law or what is in Scottish Debtor's best interests.

People interested in sorting their debt would be best advised contacting their local Citizen Advice Bureau or Council for money advice. The office's may not be as plush as those of firms like Debt Free Direct, but at the least the advice is correct!

Debt and Mental Capacity Law in Scotland

Debt and Mental Capacity Law in Scotland

In Scots Law it is usually a requirement for someone to get into debt they must have the mental capacity to do so.

However, this is not always the case. Often it will depend on the type of debt that the person is being pursued for.

So, for example, for someone to obtain a debt for a bank loan, or  a credit card, they must have had the mental capacity to have entered into a legally binding agreement, otherwise the argument is if they didn’t, they can not be held responsible for the debt.

However, there are other types of debt, that someone can be liable for, even if they lack the mental capacity, such as for rent, or Council Tax (although there may be grounds for the person to be exempt for Council Tax – see below).

Equally, someone who lacks the mental capacity to knowingly enter into a legally binding agreement, may still be liable for other types of debt, such as for gas or electricity debts. The reason being is because these debts are for necessities of life, so although the person may not have the capacity to enter into an agreement, they can still be held liable for them, as these are services the person require, regardless of whether they have mental capacity or not.

What is Mental Capacity?

The issue of mental capacity is a question of whether someone has the ability to act on their own behalf and understand fully the implications of the acts they may take.

Where people lack the mental capacity to do so, the effects legally may be their acts are void and any agreements they enter into may either be void or voidable, meaning they cannot be enforced against them.

Mental incapacity can arise for a number of reasons, either physical or mental. Sometimes it can be permanent, but other times it may be temporary. Also sometimes it may be complete, in that a person has no mental capacity to do certain types of acts, like take out a credit card agreement; whilst other times it may be partial.  It may, therefore, be possible for someone to carry out that type of act, like take out a loan, providing certain steps are taken to safeguard the person’s interests and maximize their capacity to take those acts.

Scots Law and Mental Capacity

The first thing that should be noted is that the  laws that deal with debt and mental capacity in Scotland are different from those elsewhere in the UK.

This page, therefore, examines the law in Scotland and what issues should be considered when dealing with the issue of debt and mental capacity.

These range from the ability of people with mental and legal capacity issues to act on their own behalf, give instructions and understand advice; to the ability of people who manage their affairs to receive advice and enter agreements on behalf of the person they act on behalf of.

It also examines the protections available that can mitigate and avoid any unduly harsh effects resulting from the legal enforcement of debts when there may be capacity issues. 

Capacity to act

In Scotland there is a common law presumption of capacity.

This allows people working with clients and customers to presume that the person has full contractual capacity: that is the ability to enter into legally binding contracts.

Such presumptions can, however, be rebutted: the onus being on those who wish to rely on the rebuttal. So if you want to argue that a friend or family member didn’t have full mental capacity, the onus is on you to do so, presuming of course the person themselves will lack the capacity to do so. 

So if you want to demonstrate that someone did not have the capacity to do something, like take out a loan, it is for you to demonstrate this, as the person who gave out the loan could argue they had the right to presume the person they dealt with had full legal capacity.

However, this does not mean that if there were signs that a person was confused or did not understand what they were doing, that the other person can just ignore these red flags.

It is expected when people rely on a presumption, such as the presumption that another party had full legal capacity, they must do so in good faith.

What is the Test for Capacity?

“There is no all-purpose test for incapacity. The test depends on the decision to be taken…or task to be done. The principle of least restrictive alternatives and maximising the person’s capacity underline the importance of not making blanket assessments of incapacity and recognising any residual capacity an adult has”

Hilary Patrick, et al, Mental Health, Incapacity and the Law in Scotland, Tottel Publishing 2006

What this means is when someone lacks capacity it is rarely an absolute or definitive thing.

Instead it’s likely to be a matter of degree.

The definition of incapacity in Scotland, in relation to when a person cannot make decisions on their own behalf is contained in the Adults with Incapacity (Scotland) Act 2000.

It defines incapacity as being when a person is incapable of

  1. acting; or
  2. making decisions; or
  3. communicating decisions; or
  4. understanding decisions; or
  5. retaining memory of their decisions

by reason of mental disorder.

The Scottish Government has produced Guidance for social work and health care staff, in how to assess capacity under the Act and enable decision making.

It defines capacity as:

  “…the ability to understand information relevant to a decision and to appreciate the reasonably foreseeable consequences of taking or not taking that action or decision”.

The Guidance provides Chapters on supporting decision making, assessing a client’s capacity to deal with property and money matters and  how  to work with six major groups of people who may have impaired capacity and cannot make some or all decisions for themselves.

Appendix 1 also provides sample questions that can be used to assess a client’s capacity to deal with money and property matters.

Who May Lack Capacity?

Six major groups who may have impaired capacity to act or make some or all decisions for themselves could be:

  • People with neurological conditions;
  • People with dementia;
  • People with leaning disability:
  • People with a severe or chronic mental illness;
  • People with alcohol related brain injury;
  • People affected by a sever stroke

Communication

In assessing capacity the first thing someone has to consider is whether it is possible to communicate with the client.

The Act does state that no-one should be deemed to be incapacitated simply as they lack or have a deficiency in their ability to communicate, especially if that lack or deficiency can be made good by human or mechanical aid.

Where the inability to communicate is chronic, however, this can be grounds for incapacity even if a person can make a decision, as they may not be able to communicate it.

The first step in assessing capacity, therefore, must be in assessing the person’s ability to communicate and in exploring other possible methods of communication with the person.

This may mean involving others such as family members or support workers who know the person and can possibly communicate with them or by using other means of communication, such as pictures, sign language or writing.

There is an underlying principle in the Act that where possible all reasonable steps should be taken to maximize a person’s capacity and assist them to act on their own behalf.

People who have capacity issues, should, therefore be supported to enable them, if possible, to communicate, possibly through:

  1. The use of advocacy services or family members;
  2. The conducting of interviews over several short sessions, with regular intervals;
  3. Ensuring interviews occur in an environment which makes the person more comfortable (their home or the home of family members); and
  4. Avoiding the use of technical and legal jargon.

Decision Making

It is not enough that person should be able to communicate, it is also vital that they can understand the choices they are being presented with and can make informed decisions.

The Guidance identifies two strands in a person’s ability to understand:

  • The first being the person’s ability to understand the facts;
  • The second being the ability to weigh up options and foresee the different outcomes and possible consequences of one choice over another.

Understanding the facts in relation to debt, means a person being able to understand and have an awareness of their own personal and financial circumstances, such as what income and outgoings they have and what are their assets.

The second strand, is the ability to weigh up options, and means being able to understand the advantages and disadvantages of options and what risks are involved.

This does not mean someone may be deemed incapacitated simply because they make bad or unwise decisions.

We will all have our own preferences and understanding of what constitutes acceptable risks.

It could be poor decisions may be remedied by people being better informed or having more regard to the risks.

It is necessary that the poor decisions stem from the person’s mental incapacity and their inability to understand the facts or the consequences of their decisions, or both.

Even where someone can be deemed to understand, it also worth remembering that a reduced mental incapacity or even mental illness can prevent them from acting on the information they are being given.

Authority To Act For Others

Where people do lack capacity and this cannot be sufficiently maximised, it may be possible for them to be represented by others.

In Scots law, people and organisations can have authority to act on behalf of incapacitated adults.

The majority of these powers are contained within the Adults with Incapacity (Scotland) Act 2000.

Some are consensual and can be provided for by the person themselves, whilst others are non consensual and can be provided by the courts and the Office of the Public Guardian (Scotland).

As one of the principles of the Act are that any intrusion into the affairs of an adult should be the least restrictive possible, people should be aware that even when someone holds such powers, this does not mean they can do whatever they want.

Courts will usually only grant the minimum powers necessary to minimise any intrusion into the incapacitated adult’s affairs.

When dealing with someone who is acting on behalf of another, it is, therefore, important to not only see the documentation granting their powers, but to note the extent of those powers.

The provisions in the 2000 Act allowing others to act are:

  • Power of Attorney

There are two types of Power of Attorney provided for in the 2000 Act. The first of these is Continual Power of Attorney and the second is Welfare Power of Attorney. These are both consensual powers granted to a third party by the person themselves, when they still have the capacity to do so.

The first of the two, Continual Power of Attorney, grants the third party the power to deal with the financial affairs and property of the person and importantly enter legal contracts and raise or defend legal actions on behalf of the person.

The second, the Welfare Power of Attorney, as the name suggests relates to welfare matters such as deciding on care arrangements and making lifestyle and medical decisions on behalf of the person.

  • Access to Funds Power

The Access to Funds power is not dependent on the consent of the person and can be granted by the Office of Public Guardian on receipt of an application by an individual or organisation. It allows the person or body which holds the power to deal with the person’s accounts and pay bills.

  • Intervention Order

An Intervention Order is an order which is granted by the court, usually for a one off specific purpose, such as to allow someone else to sign a tenancy agreement.

  • Guardianship Order

A Guardianship Order is made to allow an individual or organisation to act as the guardian for an incapacitated adult. The extent of any order is set by the court.

  • Manager of Authorised Establishments

These orders are granted to the manager of an authorised establishment such as a care home, to manage the financial affairs of a person in the establishment.

  • Social Security Benefit Appointees

Social Security and Tax Credit appointees can also deal with the financial affairs of a person in relation to benefits and tax credits. These powers are not contained in the Adults with Incapacity (Scotland) Act 2000.

Capacity to Contract

It has long been established in Scots Law that a person cannot enter into a contract, such as a consumer credit agreement, such as a credit card, loan or hire purchase agreement, if their lack of mental capacity prevents them from understanding the nature of the obligation.

Whether someone can understand the nature of any financial agreement will depend on the nature of the agreement and the extent which their mental capacity has been diminished.

There is no one test of incapacity and much will depend on the decision at hand and the person’s ability to understand not only the facts surrounding that decision, but the implications and consequences of any decision.

The definition of incapacity contained in the Adults with Incapacity (Scotland) Act 2000 relates primarily to when a person can make a decision for themselves and will, therefore, be relevant when a court decides if a person had capacity to contract.

If, however, information can be provided to show that a person did not understand the facts of their situation and the transactions they were involved in, then this can be vital in showing a lack of capacity to contract.

Equally important will be the dates when any impairment of the person’s mental capacity occurred, if it is not ongoing, to evidence that it existed at the relevant times when the transactions were entered.

Such evidence will not in itself determine that a person lacked capacity, as ultimately contractual capacity is a question for a court to decide, rather than that of any medical professional, but their evidence will be important.

It will, however, be necessary to gather such evidence to support any negotiations with creditors and for people to defend any legal action raised against them.

Proving incapacity in a court, where a creditor disputes it, will require evidence, including medical evidence.

If sufficient evidence can be presented, however, and on balance shows the person lacked capacity then the effect is that the contract is void.

This means no legally binding agreement existed.

This differs radically from the position in England and Wales.

It is not necessary to show that the creditor should have known that their presumption of capacity was unsafe, because by law they are entitled to make that presumption, providing there is no obvious reason they should not have relied upon it.

The logic behind this is, as the person lacked capacity to understand, there cannot have been any agreement and, therefore, any contract, as contracts require the agreement of both parties.

This raises the question of whether a person who has been incapacitated can later ratify or consent to an agreement if they regain their senses and the ability to make decisions.

An example may be the case of someone who has a credit card and suffers from a bi-polar disorder. They may lose capacity and during that period spend money on their credit card.

They then continue spending once they regain their capacity.

If the agreement had been entered into when the person was not incapacitated, then it is clear the agreement is not made void by the later incapacity, but does not mean any transactions occurring after the incapacity cannot be challenged.

Where the person lacked capacity at the time they entered the agreement, then the agreement is void and the effect is there is no agreement to ratify.

Courts may, however, take the view the debtor adopted the transactions with their later conduct.

As this issue has never been decided,the safe course of action is for the person to always renounce transactions to the creditor, by bringing it to their attention, once they regain their capacity and make no further transactions.

Even where an agreement is void, however, a person can still be held liable for the price of such goods, where those goods are necessaries, such as food or clothing.

Intoxication

A person’s mental capacity to enter transactions can also be lost by intoxication, whether such intoxication is the result of alcohol or drugs.

The level of intoxication, however, has to be substantial and must deprive the client from the exercise of reason.

They must not be able to understand what they are doing.  Intoxication may be relevant for mental health clients where the intoxication arises from prescribed medication or substance abuse and the accumulated effects of the reduced capacity, which results from their mental illness and intoxication, means they are not able to exercise reason.

In the case of intoxication, contracts are not automatically void, but can be annulled by the court providing once they regain their senses, the client takes steps to avoid what they have done and notify the creditor. It is not necessary for the creditor to have been aware of the client’s intoxication.

Facility and Circumvention

Another possible defence that may be available to a debtor suffering mental illness is facility and circumvention, although it may be harder to prove this than arguing the debtor lacked mental capacity.

Facility and circumvention is a defence that may be available to someone who suffers a degree of diminished capacity, but not to the extent that they are incapacitated. They, therefore, may understand the agreement they have entered.

It will, however, be necessary to demonstrate the person suffered a weakness of mind at the point they entered the transaction. Such a weakness can arise from mental illness, old age and physical infirmity.

Such weaknesses can also be temporary and arise from some trauma or distressing event such as bereavement.

It may be that where the client is intoxicated, but not to the extent they lack reason, they could still be considered to have a mental weakness. It is also necessary to show the other party to the agreement took dishonest advantage of this weakness, to obtain the client’s agreement, and that the person suffered some loss or harm as a result of the circumvention.               

An example of this may be bank staff persuading a person to pay off a deceased partner’s loan, as it’s what they would have wanted.

Where the weakness of mind is great, the amount of evidence required to prove the person’s will was circumvented will not be as great as would otherwise be required and vice versa.

Such contracts are not automatically void, but can be annulled by the court.

Whether it would be advisable to use such a defense now is debatable and a debtor may be better advised to consider requesting an order under S140B (unfair relationship test) of the Consumer Credit Act 1974.

This would allow the court to look, not only at the circumstances, in which the agreement was made, but also the events afterwards and how the creditors enforced the agreement.

Alternatively,  a complaint could be made to the Financial Ombudsman Service. The Ombudsman can be more flexible in what remedy they could provide, even if they felt the circumstances did not merit the agreement being annulled.

Disputing liability

Once it is clear there are issues relating to a person’s liability for their debts, it is necessary to consider how best to dispute such liability.

Much will depend on the person’s view and preferences and also the conduct of the creditors. Clearly, negotiation and requesting a write off will be less stressful than taking legal action, but another option may be the creditor’s own complaint procedure and the Financial Ombudsman Service.

Where creditors raise court action, clients may be forced to defend the case, although if the issue of capacity is disputed the onus will be on the person (or someone on their behalf) to defend the action to demonstrate they lacked the capacity and the issue may become a matter for evidence to be led.

A cautious approach to legal action should be taken, considering there could be cost implications and such action may have a detrimental effect on the person’s  well-being.

Specialised legal advice should be sought.

Enforcement of Debts and Mental Capacity

Scots law, however, also provides a number of other protections in relation to the enforcement of debt, where evidence of the debtor’s mental capacity may be relevant.

Unduly Harsh

It is often commented in Scots Law that Diligence, or legal enforcement action, is coercive and, therefore, unavoidably harsh. This does not mean, however, that diligence should be ‘unduly harsh’.

Provision exist in relation to “unduly harsh”  in the diligences of attachment and exceptional attachment, money arrestment and actions of arrestment and furthcoming otherwise known as bank arrestments.

There is no statutory definition of what constitutes ‘unduly harsh’ and it is a matter of fact to be dealt with by the Sheriff.

It is probably safe to state that where there are factors that make the execution of diligence harsher than normal, it may be considered unduly harsh.

Clearly it is for the sheriff to decide, but where a person is suffering from a lack of mental capacity, the harsh effect of diligence could be exacerbated as a result.

Evidence that a person is suffering from a lack of mental capacity is, therefore, relevant. Equally evidence that there are members of a person’s  family suffering a lack of mental capacity is also relevant, particularly where the person’s family will be affected by the diligence.

The successful use of such arguments in any application may result in the release of attached items or the release or restriction of any arrested funds.

Housing

In actions relating to the eviction of tenants for rent arrears, evidence of a person’s mental incapacity  can be considered by the courts. Section 16 of the Housing (Scotland) Act 2001, in relation to Scottish Secure Tenancies, requires the court only to make an order for recovery of possession if it believes it is reasonable.

In determining whether any eviction is reasonable the court has wide discretion to consider a number of factors including the effect any eviction will have on the tenant and their family. In such cases, where it can be shown tenants are in a position to begin making payments towards arrears, evidence of mental incapacity in the home may be relevant information which prevents the court granting an order for eviction.

In relation to homeowners facing repossession it can be important to place evidence of mental incapacity before the court during an application to suspend an action for repossession under the Conveyancing and  Feudal Reform (Scotland) Act 1970.

When considering such an application courts should have regard to any circumstances which may have resulted in the person defaulting on their loan.

A court, therefore, could consider the home owners mental incapacity, where the person’s ability to manage their affairs has arisen from such a lack of capacity.

The courts also have to consider the person and their family’s ability to secure reasonable alternative accommodation. Where this will be a problem and the consequences of not being able to do so could further exacerbate any mental incapacity,  it should be brought to the courts attention.

Bankruptcy

In bankruptcy, the mental capacity of a debtor or any of their family members may be relevant where the court has to decide whether to grant an order allowing a trustee to sell a family home. The Court is required to consider all the circumstances of the case including the needs of the family members and the person who is bankrupt.

Where such an application is made the sheriff may refuse to grant the order or postpone it for as long as they consider reasonable, up to a maximum period of 3 years.

Conclusion

In conclusion, a person’s mental capacity is an important factor when helping people with their debt.

To not do so could deny the person access to possible defenses.

Where there are communication problems it is important to  support the person and help them maximize their communication abilities where possible.

It is also necessary to ensure persons understand their own personal financial circumstances and can weigh up the advantages and disadvantages of the options that are being presented to them and assess any risks.

Even where this is possible, it is important to be aware a person’s mental incapacity may prevent them from acting.

If others purport to act on behalf of a person, it is necessary to ensure they have the necessary authority to do so.