This is a Sheriff court case considering the enforcement of standard securities (in security for loans of over £1.8m) held over 6 properties in Edinburgh.

Background
The facilities lasted for 5 years and, when they expired, Promontoria[1] demanded payment, the debtors defaulted and Promontoria called up the securities. The debtors did not challenge the calling up procedure. However, they argued that, when the loans were being negotiated, a representative of the Bank had promised that their loan facility would be extended beyond 5 years and that the securities would not be enforced at the end of the 5 year term.

The debtors referred to a meeting during the negotiations at which they had indicated to the Bank’s representative that they were not happy with the proposed 5 year term and that the term of the facility should instead be 20 years. They said that they had been told that the 5 year term was a standard clause in the contract, but that the clause would not be enforced at the end of the term and that the facility would be renewed. The debtors also said that the Bank’s representative had said:

 “Imagine the public outcry if Clydesdale Bank ever pulled in its business loans, it will never happen”.

As such the debtors argued that the Bank had made a binding promise to extend the facility at the end of the 5 year term.

Decision
The Sheriff rejected the debtors’ arguments. After considering previous authorities[2] and noting that a binding promise can only be created by clear and unambiguous words, he found that the debtors had failed to demonstrate the bank’s unambiguous intention to be legally bound or that a reasonable observer in the context would have understood that the Bank had made a binding promise.

In the first place, although the debtors had asserted that they had been told that the facility would be extended beyond 5 years and that the securities would not be enforced at the end of the 5 year term, they had been unable to provide evidence of the precise words used: those words were critical as the court had to consider the words used in the context and determine objectively whether a binding promise had been made.

In the second place, although the debtors had provided evidence of the words used in relation to the representative’s comments on the public outcry that would arise if the Bank pulled in its business loans the sheriff said the following:

“I considered it inherently unlikely that the Bank’s representative would make a promise which destroyed the legal efficacy of the Bank’s securities. Notwithstanding that observation however, in my opinion, the words pled do not indicate a clear and unambiguous intention on the part of the Bank to extend the specific loan facilities beyond 5 years and not to enforce its 6 securities, nor do I consider a reasonable recipient considering the meaning conveyed by the words, who was in the process of executing formal legally binding standard securities over property, in a commercial context, would reasonably believe so. At most, I would characterise the language used and the sentiments conveyed in the words to be no more than an invitation to speculate about public opinion allied to a strong feeling of confidence and optimism, on the part of the maker in June 2007, that the Bank’s then practice in relation to business loans would not alter.”

The full judgement is available from Scottish Courts here.

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[1] The securities were originally granted in favour the Clydesdale Bank and subsequently assigned to Promontoria.

^[2] In particular, Regus (Maxim) Ltd v. Bank of Scotland plc [2013] CSIH 12, 2013 SC 331.

Background
This is a Sheriff Court case considering the enforceability of a number of standard securities granted by 3D Garages in favour of Prolatis over a variety of different properties.

The standard securities had been granted in security of sums due to a David Gill. However, the securities had been granted in favour of Prolatis (described as a security trustee) as part of a commercial arrangement aimed at allowing a single entity to enforce obligations on behalf of a number of creditors.

Argument
Prolatis sought to enforce the securities and proceedings were raised in court. However, 3D argued that the securities were void and unenforceable on the basis that, in terms of the Conveyancing and Feudal Reform (Scotland) Act 1970, the holder of a standard security must also be the creditor in the obligation secured by the standard security. In other words: only the creditor in respect of the debts secured by a security can enforce the security.

Decision
That argument was rejected by the sheriff and an appeal to the Sheriff Principal was also refused. After considering the terms of the 1970 Act, the Sheriff Principal found that:

“There is no provision in the 1970 Act or in the common law which requires or stipulates that the grantee in the standard security must be the creditor in the contract or personal obligation.  The debtor in the personal obligation need not be the granter of the standard security.  It is well settled that the granter of a standard security may be someone other than the debtor.”

The full judgement is available from Scottish Courts here.

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.

Sheriff Court case concerning a petition for sequestration of a debtor by Glasgow City Council.

In terms of the Bankruptcy (Scotland) Act 1985[1], sequestration will not be awarded in favour of a creditor where the debtor “forthwith pays or satisfies, or produces written evidence of the payment or satisfaction of, or gives or shows that there is sufficient security for [the debt]”.

In this case the sheriff accepted an argument by the debtor that, because the Council held a standard security over subjects owned by the debtor’s brother in law, the debtor had shown that there was “sufficient security for payment of” the debt in question and refused the petition for sequestration.

That decision was appealed by the Council which argued that, in terms of the relevant provision of the 1985 Act, the debtor had to show not only that a security covering the debt existed but also that the security was capable of immediate realisation so as to lead to payment of the debt without undue delay. In that regard, Council pointed to the fact that the standard security in this case had been granted by a party other than the debtor and that the subjects secured were residential (meaning various statutory pre-actions requirements would have to be carried out before the security could be realised) thus leading to a delay in payment of the debt.

The Sheriff Principal found that the authorities supported the Council’s argument, allowed an appeal of the sheriff’s decision and awarded the sequestration.

 “Sufficient security for the payment of the debt, in my opinion, means a form of security which, by its nature, brings about immediate payment or guarantees such payment…”

 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] Section 12(3A)(b).

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 concerning the remedies available to a creditor (Acorn) under a standard security after it had granted a further security (and also assigned the personal obligation to pay the sums due) to a third party (Connaught) over the first security in its favour (The second security securing an advance made to Acorn by Connaught).

When Mr Smith (the debtor under the first security) failed to pay the sums due under the first security, Acorn served a calling up notice on him and, when he failed to comply, raised an action to enforce the first security and eject Mr Smith from the subjects (agricultural property). Mr Smith argued that, as the personal obligation to pay Acorn had been assigned to Connaught by way of the second security, there was no longer any debt due to Acorn. As such, Acorn had no title to sue.

The sheriff accepted Acorn’s argument to the effect that the statutory rights in a standard security which arise under the Conveyancing and Feudal Reform (Scotland) Act 1970 are separate to the common law rights in terms of the personal obligation contained in the separate contract between Acorn and Mr Smith. Both sets of rights could be held by different people. Acorn remained the creditor under the first security and, as such, was entitled to exercise the statutory rights to enforce the security albeit that the common law rights in the personal obligation had been assigned to Connaught and enforcement of the security would ultimately result in a payment to Connaught. This was logical as it provided Acorn with a powerful means of ensuring it could meet its obligation to Connaught and, from Connaught’s point of view,  it was right that a procedure by which Acorn could meet its obligation to them (along with any related costs) should be Acorn’s responsibility.

Accordingly the sheriff found that Acorn had both title and interest to sue.

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.

Outer House case relating to an alleged fraud. Ms McVicar was the owner of a house in Fernieside in Edinburgh which she had purchased with the aid of a loan from GMAC-RFC which held a standard security over the property. Mr Currie was a former cohabitant of Ms McVicar who she claimed had embarked on a fraudulent scheme under which the house was sold to GED for £110k with the aid of a loan of £80.5k from Nationwide. Ms McVicar’s signature was forged on a disposition of the house to GED and some of the funds (circa £45.5k) from Nationwide were used to pay off the loan in favour of GMAC-RFC. The disposition in favour GED and a standard security over the house in favour of Nationwide were recorded in the Land Register.

Ms McVicar sought: (1) reduction of the disposition in favour of GED and declarator that the entry in the Land Register recording the transfer of the title to GED was inaccurate (2) declarator that the entry in the Land Register recording the security granted by GED in favour of Nationwide was inaccurate and of no effect between Ms McVicar and Nationwide and (3) an order requiring the Keeper to rectify the register so as to delete entries relating to the title transfer and standard security.

Nationwide defended the action. Whilst they did not oppose the orders relating to the disposition and security and rectification of the register, they counterclaimed seeking payment (from Ms McVicar) of the £45.5k which had been used to pay off Ms McVicar’s loan to GMAC-RFC, arguing that Ms McVicar had been unjustifiably enriched by the payment.

Ms McVicar sought dismissal of the counterclaim. She argued amongst other things that Nationwide had a contractual right to recover from GED (Nationwide took the view that there was no reasonable prospect of recovering from GED) and that, if there had been an unjust enrichment of Ms McVicar at Nationwide’s expense, that enrichment was indirect and there was a general rule against recovery in cases of indirect enrichment. On the other hand Nationwide argued that, whilst there was a general rule against recovery in cases of indirect enrichment, there was no absolute bar. There was, they argued, a recognised exception to the general rule which allowed recovery where money/property was obtained by fraud and used to discharge the obligations of another.

Lord Doherty found that Nationwide’s arguments were not bound to fail and allowed a proof before answer.

 The full judgement is available here.

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