4.2.3 Benefits of approach B

The first reason that the commission mentions, is that a double act of registration “would involve more trouble and expense than would seem justified by the risk sought to be guarded against”. At first sight, this argument seems convincing. After all, 99% of the transactions take place as planned, without an actual double grant by or insolvency of the grantor. If priority notices became standard practice, the commission rightfully notes that “almost all would turn out to have been unnecessary”. However, as mentioned above, the mere possibility of a double grant/insolvency problem gives rise to transaction costs. Because Germany (also a civil law jurisdiction) uses the priority notice to prevent exactly these transaction costs from occurring, the idea of a priority notice could, in general, still provide a viable solution to reduce transaction costs, even though the commission is of the opinion that this is probably not the case for Scotland.

A second, more convincing argument against the priority notice – and, therefore, in favour of approach B – is that the priority notice not only operates in a conflict between a grantee and creditors, but also in a conflict of grantees against other grantees. Operation in this context, however, cannot be justified on the basis of the argument developed in section 3.3.3, namely that an asset is worth more to a grantee than to a creditor. There is no indication that the grantee that registers a priority notice (first), is able to generate more value than a grantee that registers a priority notice later (or does not use a priority notice at all). This is exactly what makes alternative B attractive: it is a vacuum instrument that only operates when its operation can easily be justified by the difference between market value and forced sale value. In this regard, the commission notes that protection against double grants is offered by other instruments, such as the ‘rule against offside goals’.1 This rule entails that the title of an acquirer can be set aside by reduction, if the acquirer knew about an earlier grant in favour of someone else. The commission then poses the question whether “the relatively low incidence of risk justifies the complexities of a system of [priority] notices, or that the few acquirers who turn out to be unlucky should be left to try their fortunes in the courts”. No answer is provided, although the phrasing of the question implies that priority notices are considered too complicated by the commission. Another benefit of method B is that method A requires a register which keeps track of the legal status of an asset: method B can therefore also be applied in the context of different types of assets, such as movable property.