Outer House case concerning a creditor’s right of sale over security subjects held under a standard security. The syndicate financed the purchase of a site at Eurocentral near Motherwell, on which a hotel and office complex (which remained unoccupied) were constructed, partly by means of a loan secured by a standard security.

The syndicate failed to make payments under the loan agreement and Hadrian (the holder of the security) demanded payment of the loan, served a calling up notice on the syndicate and began to market the subjects. Hadrian received an offer from the hotel operator for £5m and another offer from Calgacus Capital Limited (a wholly owned subsidiary of Hadrian) for £5.2m. The effect of the proposed deal with Calgacus would have been that (i) the syndicate’s members would have incurred a balancing payment of £2.3m in respect of capital allowances (which the syndicate argued would not have been triggered under the hotel operator’s bid) and (ii) that the syndicate would have been left owning the unoccupied office premises.

The syndicate sought interim interdict preventing the sale to Calgacus on the basis that the subjects had not been advertised properly. They also argued that (in engineering a bid from its own subsidiary which would result in a balancing payment) Hadrian had improperly used the procedure to apply commercial pressure to the syndicate to pay more towards their outstanding debt than the loan agreement provided for.  (The loan agreement prevented recourse to the personal assets of the members of the syndicate.)

Lord Hodge rejected the syndicate’s motion for interim interdict finding that the syndicate’s challenges in respect of both the advertising of the property and the improper use of powers were weak.  Also, if a more cogent case could be made successfully at a later stage, the syndicate would be entitled to an adequate remedy in damages.  In coming to this conclusion, Lord Hodge noted that the financial loss to the syndicate would have been greater than that of Hadrian if the interim interdict were not granted. However, Lord Hodge also took account of the fact that the syndicate’s members had decided they were not prepared to contribute further funds or buy a variation of the loan agreement when exposed to the tax clawback. In the absence of a clear legal wrong it was not appropriate to prevent Hadrian proceeding with the sale to Calgacus.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.