Sheriff court case relating to a standard security granted in favour of Outlook Finance over Harperfield Farm near Lanark.

Background
The standard security was granted by Euan Lindsay in October 2010 as security for a loan of £1,355,000. Euan Lindsay died in June 2011 and his executor continued to make contractual monthly interests payments on the loan until October 2012 but no payments were made after that. Outlook served a calling up notice in September 2014 and sought to recover possession of the property.

The description of the subjects in the standard security contained a description of the subjects by reference to the name of the subjects and by reference to a Sasines title recorded in the Register of Sasines (all of which was accurate). However, it also contained a particular description (i.e. a description identifying the boundaries of the property) of the subjects in a schedule which was incorrect (it had been taken from a prior title but text referring to exceptions from the property had been omitted.). The error was then repeated in the calling up notice.

Arguments
The executor argued that the error in the particular descriptions invalidated the documents and meant that Outlook’s action seeking repossession of the property was incompetent. The executor also argued that Outlook had failed to comply with pre-action requirements[1] requiring the provision of information to the debtor.

Decision
Descriptions
After considering the authorities, the sheriff found that a faulty description of subjects in a standard security will be sufficient so long as what is contained within the descriptions enable the subjects of the security to be correctly identified (after reasonable search and enquiry if necessary) with certainty.

The sheriff said the following:

“I conclude that there is in the standard security an error in that while the subjects were correctly described by reference, owing to a mere clerical error or oversight, part of the full particular description was omitted. So, if one sets aside the particular description, what remains is a fully sufficient description of the subjects, sufficient to accurately identify them without any reasonable doubt. That error has not led to any practical error in identifying the subjects of the standard security which is Harperfield Farm in the standard security. The precise boundaries of those subjects are apparent from the description by reference. The error has led to no confusion about that fact in anyone’s mind, not least, the present defender.”

As such, the sheriff found that both the standard security and the calling up notice were valid despite the errors in the particular description.[2]

Pre-action requirements

In terms of the legislation[3] (before commencing repossession proceedings): “the creditor must provide the debtor with clear information about-

(a) the terms of the standard security;

(b) the amount due to the creditor under the standard security, including any arrears and any charges in respect of late payment or redemption; and

(c) any other obligation under the standard security in respect of which the debtor is in default.”

Outlook argued that it had done this in a letter of 14 December 2014 but the sheriff disagreed. The main problem for Outlook related to the specification of the amount due in the letter. The letter stated that the account balance (and also the account arrears) amounted to £2,884,536.97. However, the letter did not specify how that figure had been arrived at. The sheriff found that the obligation to provide clear information meant that there should be no reasonable doubt as to how the total amount said to be due had been arrived at and that an accounting should be provided showing the principal sum borrowed, the arrears of payments due and also the charges attributable to the default. That had not been done in this case. Although it may have been possible for Mr Lindsay to attempt to work out how the figure had been arrived at, the obligation was on the creditor to provide the clear information, not for the debtor to attempt to work it out.

The full judgement is available from Scottish Courts here.

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[1] In terms of the Conveyancing and Feudal Reform (Scotland) Act 1970 as amended by the Home Owner and Debtor Protection (Scotland) Act 2010. (The pre-action requirements were applicable because part of the property was residential.)

[2] Outlook also sought rectification of the documents (under s 8 and 9 of the Law Reform (Miscellaneous Provisions) Scotland Act 1985). However, although the sheriff found that rectification was not competent in the course of these proceedings, he found it was not necessary as the deeds were valid despite the errors.

[3] Section 24A(2) of the Conveyancing and Feudal Reform (Scotland) Act 1970.

Inner House case relating to the repossession of a residential property subject to a standard security (in favour of Swift Advances) securing a loan in respect of which the debtors (Mr and Mrs Martin) were in considerable arrears.

The main issues for the court were whether Swift had complied with the necessary pre-action requirements a creditor is required to take before repossessing a residential property[1] and whether it was reasonable, in the circumstances, for the court to grant decree allowing repossession of the property.

Amongst the pre-action requirements are obligations on the creditor:

1. to make “reasonable efforts to agree with the debtor proposals in respect of future payments to the creditor under the standard security and the fulfilment of any other obligation under the standard security in respect of which the debtor is in default”; and

2. not to make an application (allowing it to repossess the property) if the debtor is taking steps likely to result in (a) “payment to the creditor within a reasonable time of any arrears, or the whole amount, due to the creditor under the standard security; and (b) fulfilment by the debtor within a reasonable time of any other obligation under the standard security in respect of which the debtor is in default”.

The Martins property formed part of a larger property, the other part of which was owned by their daughter and son-in-law (the Hendersons). Discussions took place between the solicitors acting for Swift and those acting for the Martins regarding a potential purchase of the Martins property by Hendersons. The Hendersons were prepared to purchase the property on the basis of a valuation of £300k (obtained in July 2010). However, the property had been valued at £750k at the time of the loan (3 years previously) and Swift were concerned at the low valuation (the outstanding debt was said to be approaching £700k).  Mrs Henderson had also indicated to Swift that there was a problem with access to the Martins property (in that access to the Martins’ property depended on the consent of the owner of the Hendersons’ property). Correspondence followed in which Swift’s solicitors unsuccessfully sought the original title deeds from the Martins solicitors (which were held by the holder of a prior security) to ascertain the correct position regarding access (in order that the effect on the valuation could be ascertained) and the Martins solicitors repeatedly sought to insist that Swift accept the Henderson’s proposal of a purchase at £300k. Swift then resumed court proceedings aimed at repossessing the property (an action had previously been brought to an end to explore the possibility of resolving matters without litigation).

The Martins argued that Swift had not made reasonable efforts to agree its proposals to sell the property to the Hendersons (breaching pre-action requirement 1. above) and that, by taking steps to repossess the property while the Martins were proposing a sale to the Hendersons, Swift failed to comply with pre-action requirement 2. (above).

Those arguments were rejected by the Inner House which agreed with the findings of the Sheriff Principal to the effect that the pre-action requirements were aimed at protecting against the situation where a creditor takes action rapidly following a debtors default without communication with the debtor and without making any accommodation allowing the debtor to remain in occupation of the property with an adjusted payment regime. However, in this case, both parties were held to have made reasonable efforts to reach an agreement albeit those efforts had failed and Swift were found to have complied with the pre-action requirements.

“The pre-action requirements introduced by the 2010 Act[2] in respect of residential borrowing are designed to ensure that there is a genuine exploration of the possibility of an arrangement being reached whereby, in due course, the default can be remedied, albeit this may require indulgence on the part of the creditor.  The whole tenor of section 24A(3) and (4) is of discussions aimed at an alternative agreement whereby the debtor’s obligations can be fulfilled, for example, on the basis of a lower monthly payment extending over a longer period.  There is nothing to suggest that a proposal to pay only a fraction of the sum due must be accepted, or that it can stop the raising of court proceedings.”

The court also found that, in the whole circumstances, including the pre‑action correspondence, it could not be said that it was unreasonable for the court to sanction possession of the subjects and their sale on the open market by Swift.

The full judgement of the case is available from Scottish Courts here.

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[1] Contained in s24A of the Conveyancing and Feudal Reform (Scotland) Act 1970.

[2] The Home Owner & Debtor Protection (Scotland) Act 2010 (which amended the 1970 Act).

Sheriff Court case in which a creditor (Westfoot) sought to repossess and eject a debtor (EPH) from residential properties secured by standard securities after the EPH defaulted on payments relating to the associated loan.

EPH (a Panamanian company registered in the USA) admitted that the loan had been made and that it was in continuing arrears. However it argued that Westfoot had failed to comply with the strict statutory requirements necessary to repossess the property.

Calling up procedure
As the properties were residential, EPH argued that, when enforcing the security, Westwood required[1] to comply with the range of statutory obligations[2] aimed at protecting homeowners from being unfairly removed from their homes.

The sheriff rejected that argument finding that the protections contained in the legislation were intended for home owners and not corporate property speculators. It was noted that a company (in contrast to a natural person) does not have a ‘home’ in the sense that it would require to find alternative accommodation if it were ejected from the premises.

The sheriff found that:

“the sole beneficiaries of the legislation are debtors who own their home and use it as a security for debt, home owners who allow the home they mostly live in to be used as security for someone else’s debt, occupiers whose home is not otherwise protected by legislation[3] and entitled residents [including, for example, estranged partners of debtors] who live solely or mainly in a home used by a debtor or proprietor to secure a debt…”

However:

“corporate borrowers that grant standard securities over their residential property assets and use these as collateral security, to raise capital on the financial markets, are not included within the scope of the protection created. That kind of borrowing is a commercial activity.”

Ejection procedure
EPH also argued that, because the legislation governing the ejection of a debtor from a property[4] refers to the proprietor being in “personal occupation” of the property, it could not be used to eject a legal person (such as a company) from a property.

However, the sheriff found that, reading the legislation in a way that (in so far as possible) is ECHR compliant (which included protecting Westfoot’s right to enjoyment of its possessions), resulted in an interpretation of the legislation allowing the ejection of a company such as EPH.

Nevertheless, in this case, as there was no evidence that EPH itself was actually in possession of the properties (which were occupied by tenants[5]), an order for ejection of EPH was not required and the sheriff refused to grant it.

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.

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[1] This point was conceded by Westwood although the sheriff noted that he had “no doubt that these measures were never intended by the Scottish Parliament to shield Panamanian property companies from the ordinary consequences of their failure to comply with obligations in terms of contracts freely entered into, on the financial markets.”

[2] Contained in the Conveyancing and Feudal Reform (Scotland) Act 1970 and the Heritable Securities (Scotland) Act 1894 (as amended by the Homelessness etc (Scotland) Act 2003, the Home Owner and Debtor Protection (Scotland) Act 2010 and the Housing (Scotland) Act 2010).

[3] Including, for example, assured tenants under the Housing (Scotland) Act 1988.

[4] The Heritable Securities (Scotland) Act 1894.

[5] Who, if they were assured tenants under the Housing (Scotland) Act 1988, would have separate rights of protection from ejection.

Background
This is an Outer House case in which Mr Aronson sought rectification of the Register. Mr Aronson had bought a property (on Dean Street in Kilmarnock) from the Bank of Scotland which was exercising a power of sale under a standard security following a repossession.

The property previously belonged to Mr Alexander who, in addition to granting the standard security in favour of the Bank of Scotland, had subsequently granted three further securities in favour of two other creditors. When Mr Alexander fell into arrears, the Bank of Scotland obtained a warrant to repossess and sell the property[1] (in May 2010) and subsequently disponed the property to Mr Aronson (in February 2011).  At the time of the repossession proceedings it was common for creditors to repossess and sell property without first following the calling up procedure and, in this case, the Bank had not served a calling up notice. However, in November 2010 the Supreme Court[2] decided that in any case where a creditor seeks repayment of a debt, failing which, the sale of the security subjects, it must first serve a calling up notice and thereafter wait two months before repossessing the property.

Mr Aaronson submitted an application to register the disposition in the Land Register in March 2011. In terms of the (Form 2) application, Mr Aronson required to indicate whether the necessary statutory procedures had been followed in relation to the Bank’s power of sale and, as a result of the Supreme Court’s decision noted above and the failure to follow the calling up procedure, Mr Aronson indicated that the necessary procedures had not been complied with.

When the Keeper registered the disposition, she excluded indemnity in respect of Mr Aronson’s title and, although the standard security in favour of the Bank of Scotland did not appear in the Charges Section of the Title Sheet, the three securities in favour of the other two creditors did[3].

In terms of the relevant legislation[4], where a creditor grants a disposition in exercise of a power of sale, the property is disburdened of that security and all other securities ranking equally with it or behind it. Mr Aronson sought to have the register rectified so as to delete the three remaining securities. The Keeper maintained that the register was not inaccurate as the property had not been disburdened of the standard securities on the basis that there had been no sale of the property in terms of the legislation as the Bank had not followed the correct procedure.

Decision
Lord Doherty rejected the Keeper’s argument and found that the register was inaccurate. There had been a sale by the bank, within the meaning of the legislation and, as such, the property had been disburdened of the securities.

As to a contention by the Keeper that, allowing the property to be disburdened of the securities where the correct procedures with regards to repossession and sale had not been followed, was to allow the Bank to benefit from its own wrong and was contrary to public interest, Lord Doherty said the following:

 “While I do not rule out entirely the possibility that the circumstances of some sales might be so contrary to public policy that Parliament might be taken to have intended to exclude them from the ambit of s. 26, I am very clear that the circumstances of the sale by the Bank to the pursuer do not fall within any such category.  In treating the loan default as a default in terms of standard condition 9(1)(b), and in proceeding down the s. 24 route, the Bank acted in good faith and in accordance with what was then understood (by the courts, conveyancers, and financial institutions and their advisers) to be a lawful route to sale.  There was no deception or bad faith.  There was no intention to depart from or undermine the proper procedures for sale…  …In such circumstances I see no scope for giving any weight to the canon of construction that a party should not be permitted to benefit from his own wrong.  I am equally clear that there is no justification for giving “sale” in s. 26(1) a strained construction in order to avoid the natural construction producing serious damage to the public interest.  On the contrary, in my view the natural and ordinary meaning relied upon by the pursuer serves the public interest.  On the other hand, deserving persons such as the pursuer would be prejudiced by the strained construction which the first defender suggests.  That strained construction is also one which runs counter to the presumption that a statutory provision should be construed so as not to produce injustice.”

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.

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[1] Under s24 of the Conveyancing and Feudal Reform (Scotland) Act 1970.

[2] Royal Bank of Scotland plc (Respondent) v Francis John Wilson and another, [2010] UKSC 50.

[3] Notes were appended to the entries excluding indemnity both in respect of any loss arising from rectification of the register to delete the standard securities or from the property being found not to have been disburdened of the above standard security.

[4] S26(1) of the 1970 Act.

Sheriff Court case in which Ms Strickland raised an action under section 25 of the Conveyancing and Feudal Reform (Scotland) Act 1970 seeking damages from Blemain Finance on the basis that it failed to sell a repossessed property for the best price that could reasonably have been obtained.

Background
Blemain sold the property for £150k after it had been on the market for 12 weeks. After hearing evidence from a charted surveyor to the effect that if Blemain had marketed the property for a longer period a price of £175k could have been obtained, the sheriff concluded that a price of £160k could have been obtained over a further 3 months and awarded damages of £10k. The sheriff made no award with regard to interest on the basis that, the sale of the subjects had resulted in a shortfall of just over £10k with respect to Ms Strickland’s debt to Blemain and the outstanding balance of the debt had nonetheless been frozen by Blemain. (The sheriff taking the view that, after the sale, Blemain’s wrongful withholding of £10k –through its failure to obtain the best price- was eliminated by the fact Ms Strickland was not called upon to make interest payments on the outstanding debt.)

Ms Strickland appealed on the basis that:

1. despite accepting the surveyor’s evidence that a sum greater than £150k ought to have been achievable with more time, when it came to quantification of the increased sum, the sheriff had, for no cogent reason, departed from the surveyor’s evidence; and
2. having specifically precluded consideration of the shortfall for the purposes of determining the principal sum due to Ms Strickland, the sheriff had then taken the existence of the shortfall into account when considering whether an award of interest should be made.

Decision
The sheriff principal refused the appeal in relation to the damages due in respect of the failure to obtain the best price but allowed the appeal on the question of interest.

Best price
With regard to calculation of the damages in respect of the failure to obtain best price, the sheriff had articulated his reasons for the selection of a lesser figure (the fact that there had been no competing offer at the time the offer of £150k had been made, the effect of the recession and the existence of adverse feedback about the condition of the property).

The sheriff principal also took the view that he should be slow to interfere with the sheriff’s decision unless it could be demonstrated clearly, that he had misunderstood the facts, applied the wrong principles or arrived at a conclusion which was manifestly unjust and was not persuaded that any of these features had been made out. In coming to this decision the Sheriff Principal noted that this was a case in which the parties had agreed to dispense with shorthand notes (and, consequently, no transcript of the evidence was available for the purposes of the appeal) and that the sheriff had the advantage of having seen and heard the witnesses involved and had had the opportunity to consider the evidence in its totality.

Interest
On the other hand, the sheriff principal found Ms Strickland’s arguments regarding interest to be well founded: the shortfall having been specifically left out of account by the sheriff, at the request of parties, it was not then open to him to reintroduce it into the case when it came to the question of interest.

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.

Sheriff Court case in which HSBC sought to recover possession of a cottage in Lockerbie when the debtor defaulted in terms of a standard security over the property. The sole issue for the court was the reasonableness of the orders sought by HSBC. (In terms of the Conveyancing and Feudal Reform (Scotland) Act 1970 the Court can only grant an order allowing the creditor to exercise its remedies  where the court considers that it is reasonable in the circumstances to do so.)

At first instance the sheriff granted the orders sought by HSBC allowing them to take possession of the property. In coming to his decision the Sheriff took account of two proposals made by the debtor to make repayments to HSBC. Both of the proposals required HSBC to compromise the sums due by over £100k (the debtor’s total indebtedness amounted to over £400k). Although HSBC did not make any counter proposals, the sheriff noted the lack of financial information provided by the debtor and the late stage in the proceedings that the proposals for payment were made (the week of the hearing) before finding that it was reasonable to grant the application in favour of HSBC.

The Sheriff Principal refused an appeal of that decision.

“As at present advised, although two separate offers have been made, there is no information before the court as to how these offers would be funded. There is no statement of assets. There is no statement of income and expenditure. There is [no] document from a source which would provide funding to allow the indebtedness to be obtempered. There is no assurance available to the respondent that funds would be available on the dates set out by the appellants. It cannot be said that it would be reasonable in these circumstances for the respondent to accept either of the offers which have been made. They are wholly unsubstantiated

The sheriff’s decision was one which he was entitled to make in the exercise of his discretion in light of all the information before him.  The appeal fails.”

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.

Sheriff Court case in which Northern Rock sought declarator that Mr Fowlie was in default and that it was entitled to sell[1] a property subject to a standard security without following the procedure set out in s24(1B) of the Conveyancing and Feudal Reform (Scotland) Act 1970 as the property was unoccupied.

In granting the declarator,Sheriff Mann agreed with the decision of Sheriff Braid in Accord Mortgages Limited v Edwards  in which it was noted that s24 applies only where the subjects are being used for residential purposes and found that, where the subjects are unoccupied, they cannot be said to be being used for residential purposes.

In this case, Northern Rock had lodged both a Field Agent Report and Sheriff Officer Report which concluded that the property in question was unoccupied. Sheriff Mann observed that, as s24 requires the service of notice on the debtor of their right to make representations to the court, if the notice were not served, then a debtor may choose not to oppose an action in ignorance of that right.  As a result, the Sheriff concluded that creditors should not be allowed to raise proceedings by way of declarator by ordinary cause unless they are in a position to demonstrate that, prima facie, the subjects are unoccupied. Here, the Field Agent Report and Sheriff Officer Report had been an appropriate way for the creditor to show this.

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.

In November 2010 the Supreme Court in RBS v Wilson found that, in any case where a creditor seeks repayment of a debt, failing which, the sale of the security subjects, it must first serve a calling up notice[1] and thereafter wait two months before repossessing the property. This was contentious as, up until the decision in Wilson, practitioners had believed that the calling up procedure was not necessary[2].

Following the Wilson case, the Scottish Government issued an informal consultation[3] on whether the decision has long term implications requiring mitigation through action of the Scottish Government. The Scottish Government has now issued a report analysing the responses.

A majority of respondents thought that there were negative impacts from the judgement and the Scottish Government should act to mitigate those. Whilst the responses revealed no clear trends, lenders and lender services focused on practical issues resulting from the increased timescales and costs involved in following the calling up procedure.  In particular the two month delay in process caused concern and some consultees also commented on a lack of clarity and consistency in the law.

However, a notable minority of respondents felt that there were no long term impacts justifying action by the Scottish Government. The Law Society of Scotland took the view that “the Scottish Government should not take any measures unless or until it is clear that there are long term impacts which require to be addressed.” Professor Gretton saw no reason for emergency legislation pointing out that the calling up procedure was not unreasonable (indeed it was probably what had been intended when the 1970 Act had been drafted) and the 2 month ultimatum procedure not excessively long. He also referred[4]  to the Scottish Law Commission’s imminent project on heritable securities which includes enforcement and saw no need for an additional review. Although the decision caused some problems for enforcement proceedings in hand at the time the decision came out, Professor Gretton noted that most had already sorted themselves out and the rest would do so fairly soon.

A summary of the responses is available here.

A full analysis of the responses is available here.

Sheriff Court case concerning the competency of service of a calling up notice under the Conveyancing and Feudal Reform (Scotland) Act 1970.

After having failed to find Mr Gallagher, Sheriff Officers instructed by Santander, purported to serve the notice on Mr Gallagher by putting it through his letter box.

Santander sought to argue that service in this way satisfies s19 (6) of the 1970 Act which says:

“For the purposes of the foregoing provisions of this section, the service of a calling-up notice may be made by delivery to the person on whom it is desired to be served or the notice may be sent by registered post or by the recorded delivery service to him at his last known address, or, in the case of the Lord Advocate, at the Crown Office, Edinburgh, and an acknowledgment, signed by the person on whom service has been made, in conformity with Form C of Schedule 6 to this Act, or, as the case may be, a certificate in conformity with Form D of that Schedule, accompanied by the postal receipt shall be sufficient evidence of the service of that notice; and if the address of the person on whom the notice is desired to be served is not known, or if it is not known whether that person is still alive, or if the packet containing a calling-up notice is returned to the creditor with an intimation that it could not be delivered, that notice shall be sent to the Extractor of the Court of Session, and shall be equivalent to the service of a calling-up notice on the person on whom it is desired to be served.”

Santander referred to the unreported decision Household Mortgage Corporation plc-v-Diggory (1997)in which it was found that physical delivery to the debtor was not required where service by recorded delivery post was employed.

However, Sheriff Mackie found that Santander’s calling up notice had not been competently served.  In terms of s19 (6) service can be made:

1. by delivery in person (which means the creditor has to place the document in the hands of the debtor);
2. by recorded delivery at the last known address of the debtor (no personal delivery is required and, so long as the document is not returned  with intimation that it could not be delivered, then it can be presumed to have been served); or
3. by notice to the Extractor of the Court of Session (which refers to a situation in which the notice is valid even though the debtor knows nothing about it).

Whilst service by recorded delivery does not require that the document is physically delivered, that does not mean that alternative modes of service do not require to involve physical delivery.

Sheriff Mackie also made reference to Rule 5.4 of the Sheriff Court Rules which provides that a Sheriff Officer can serve a document by depositing it at an address after making due enquiries.  She noted, however, that this only applies to official functions carried out under Act of Sederunt (Messengers-at-Arms and Sheriff Officers Rules) 1991. When serving the calling up notice, the Sheriff Officers were carrying out an extra official function (i.e. not an official function) and, as such, the calling up notice required to be served in accordance with s 19(6) of the 1970 Act.

A full report of the decision is available from Scottish Courts here.

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