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The requirement in a notice of default is the same as a requisition. Ratio |
The word formal means no more than that it must be made in the statutory form. Ratio |
Moreover, the comma in the proviso to section 5, and the absence of further words such as in either case, make it clear that the phrase after formal requisition only applies to payment of principal and not to interest. Ratio |
As already explained, the point about payment of interest does not arise in this case since the Bank have not established that there has been a failure in that respect. Ratio |
So far as the Division proceeded on the basis that a Schedule 7 certificate can constitute a formal requisition for the purposes of section 5 of the 1894 Act, Mr McIlvride explained that he had not advanced that argument before the Division and felt unable to support this aspect of their reasoning. Ratio |
A Schedule 7 certificate contains no requirement of any kind: it is simply a piece of evidence which is created for, and used in, the proceedings. Ratio |
It cannot therefore constitute the formal requisition which must precede the proceedings for ejection. Ratio |
Moreover, even if the requirement in a notice of default in the form in Form B in Schedule 6 would count as a formal requisition, as the Extra Division argued, that is irrelevant in the present case since the Bank did not serve such a notice. Ratio |
It respectfully appears to me that the reasoning of the Extra Division on this point cannot be upheld. Ratio |
Counsel preferred to base his argument on part of the wording of section 24(1) of the 1970 Act. ARG |
He argued that, if the court did indeed grant the Bank warrant to exercise any of the remedies which a creditor is entitled to exercise on a default within the meaning of standard condition 9(1)(a), then the Bank would be in the same position as if they had served a calling-up notice with which Mr Wilson had not compli... |
In other words, the Bank must be treated as having, in effect, served a calling-up notice which as Mr Summers accepted would constitute a formal requisition for purposes of section 5 of the 1894 Act. ARG |
So the court could grant decree to eject Mr and Mrs Wilson, who had no substantive defence to the Banks claim. ARG |
The argument certainly has its attractions, not least because as Mr McIlvride stressed Mr and Mrs Wilson know perfectly well what they have been asked to pay and they have had ample opportunity to put forward their defence. Ratio |
Nevertheless, I would not accept the argument since the simple fact is that section 5 of the 1894 Act only allows the creditor to take proceedings for ejection if they have been preceded by a formal requisition. Ratio |
Mr Summers referred to a number of authorities, including Inglis Trs v Macpherson 1911 2 SLT 176, to show that section 5 was passed in order to introduce a new summary procedure for obtaining the drastic remedy of ejection. Ratio |
Mr McIlvride accepted this. Ratio |
That being so, it would, in my view, be wrong to water down the precondition imposed by Parliament for using that summary procedure. Ratio |
In more concrete terms, if a formal notice had been given, Mrs Wilson would have been warned about the situation and about the danger of being ejected from her home, before any proceedings were started. Ratio |
Which seems only reasonable. Ratio |
Approaching the matter on this footing, I would have allowed the appeal. Ratio |
Mr McIlvrides cri de coeur that to impose a requirement on the Bank to make a formal requisition is tantamount to requiring them to serve a calling-up notice really brings us back to the fundamental point. Ratio |
Were the Bank actually, all along, obliged to serve a calling-up notice if they wanted to require payment of the debt and, failing payment, to sell the Wilsons house? I must retrace my steps to see if there is another way through the maze. Ratio |
Must a creditor serve a calling-up notice when section 19(1) applies? Ratio |
The terms of section 19(1) are quoted at para 23 above. Ratio |
It is not disputed that the subsection applies to the situation in this case: undoubtedly, therefore, the Bank could have served a calling-up notice, with the result that any default would be under standard condition 9(1)(a). Ratio |
The question is: were they bound to do so? Section 19(1) (he shall serve a notice calling up the security) appears to say that they were. Ratio |
But, in practice, it has not been treated as requiring a creditor to serve a calling-up notice in these circumstances. Ratio |
Rather, it has been treated as permitting a creditor to use the calling-up procedure, but as also permitting him, in the alternative, to treat the debtor as being in default within the meaning of standard condition 9(1)(b). Ratio |
On that approach, the creditor can serve a calling-up notice under section 19, or serve a notice of default under section 21, or simply apply to the court for a warrant under section 24. Ratio |
Section 19(1) is simply one option for the creditor: he can use it if he wants, but he can also choose to use one of the other remedies, if he wants. Ratio |
Such, we were told, is the way the legislation has been interpreted in practice. Ratio |
Counsel mentioned that at the hearing in the Inner House one of the judges questioned whether this was the correct interpretation of these sections. Ratio |
But, understandably, the point was not pursued after their Lordships were referred to the decision of the Extra Division (Lord Sutherland, Lord MacLean and Lord Allanbridge) in Bank of Scotland v Millward 1999 SLT 901. Ratio |
This decision would certainly have been well known to Lord Drummond Young who had been counsel for the Bank of Scotland. Ratio |
It is not binding on this Court, however, and its reasoning must be scrutinised. Ratio |
A footnote to another report of the case, 1998 SCLR 577, 585, suggests that an appeal to the House of Lords may have been contemplated. Ratio |
If so, it was not pursued. Ratio |
In Millward Lord MacLean gave the courts decision, which is summarised at p 903H-I: In our opinion the law is correctly stated in Hallidays Conveyancing Law and Practice (2nd ed), that the creditor may serve a calling up notice where a creditor in a standard security intends to require repayment of the principal sum an... |
He may, alternatively, serve a notice of default. Ratio |
As this summary suggests, their Lordships appear to have been much influenced by their perception that the late Professor Halliday, whom they rightly described as the architect of the Act, considered that a creditor who intends to require repayment of the principal sum and interest is not obliged to serve a calling-up ... |
It is noticeable that they make no mention of an application to the court under section 24(1). Ratio |
Before looking more closely at what Professor Halliday said, I must examine an assumption that apparently underlies the Extra Divisions approach in Millward. Ratio |
In outlining the parties arguments Lord MacLean recorded, 1999 SLT 901, 903B-C, that counsel for the Bank had acknowledged that section 19 of the Act applied only when there was a requirement of discharge of the entire debt. Ratio |
In the present case the Bank required Mr Wilson to repay the entire debt and so it is strictly speaking unnecessary to decide whether that view is correct. Ratio |
Moreover, the point may be unlikely to arise very often in practice since most banks and building societies will include an acceleration clause entitling them to require repayment of the entire loan if the debtor fails to pay any part of the total debt when it becomes due. Ratio |
Nevertheless, it should not be assumed that it is only where the creditor requires repayment of the entire sum that serving a calling-up notice under section 19(1) is competent. Ratio |
Presumably no reasoning is given in Millward the view that this is the position is based on the opening words of section 19(1): Where a creditor in a standard security intends to require discharge of the debt thereby secured. Ratio |
The suggestion must be that the combination of the debt thereby secured and discharge indicates that Parliament is referring to the situation where the creditor requires the debtor to pay the whole of the debt or perform the whole of the obligation ad factum praestandum for which the security has been granted. Ratio |
As Lord Clarke pointed out in the course of the argument, however, section 9(8)(c) provides that debt means any obligation due, or which will or may become due, to repay or pay money and any obligation ad factum praestandum. Ratio |
An obligation to repay 50K of a loan of 100K must fall within the words any obligation due to repay money and the debtor who repays 50K discharges that obligation, which is secured by the standard security. Ratio |
Moreover, where Parliament wishes to refer to the whole of the debt due from the debtor, it uses the expression whole amount due. Ratio |
See sections 18(4), 27(1)(c), 28(2) and 30(1) and standard condition 11(4) and (5) in Schedule 3. Ratio |
For these reasons, it seems difficult to restrict the scope of section 19(1) to situations where the creditor intends to recover the entire debt. Ratio |
It may be worth mentioning another point about the opening words of section 19(1). Ratio |
They refer to the creditor in a standard security intending to require discharge of the debt thereby secured. Ratio |
That expression aptly describes the debtors liability under any personal obligation, irrespective of whether it is constituted by a separate instrument (Form B in Schedule 2) or in the deed itself (Form A). Ratio |
So a calling-up notice applies to both. Ratio |
It is much less clear that the same can be said of a notice of default or of the procedure in section 24(1). Ratio |
Both of those procedures apply where the debtor is in default within the meaning of standard condition 9(1)(b) and, reading short, that standard condition applies where there has been a failure to comply with a requirement arising out of the security. Ratio |
Where the debtor fails to comply with a personal obligation constituted by a separate instrument, he fails to comply with a requirement under that instrument. Ratio |
But it is hard to see how he can properly be said to have failed to comply with a requirement arising out of the security. Ratio |
It is true that, when Parliament refers to the whole amount due under the security in section 28(4), for example, this must refer to standard securities in Form B as well as Form A. But, by section 30(2), that expression has to be read in the light of the definition of whole amount due in section 18(4). Ratio |
So read, the expression provides no basis for ignoring the specific words used in standard condition 9(1)(b). Ratio |
There is therefore a difficulty in holding that a notice of default could apply to a failure to pay a sum due under a separate instrument. Ratio |
This tends to support the view that serving a calling-up notice under section 19(1) is the only competent route in the circumstances, since it is hard to see why Parliament would have intended to distinguish between Form A and Form B standard securities in this respect. Ratio |
Other complications can be envisaged, but it is unnecessary to explore them. Ratio |
I can now return to the reasoning of the court in Bank of Scotland v Millward 1999 SLT 901. Ratio |
The Extra Division appear to have been influenced by their perception that conveyancing practitioners used notices of default even in situations where they could use calling up notices: 1999 SLT 901, 903G. In particular, they had been told, at p 903C-D, that the Bank of Scotland tended to use calling-up notices for res... |
But the facts of this case suggest that other financial institutions do not follow that policy. Ratio |
In any event the practice of even the most distinguished conveyancers cannot prevail if it is irreconcilable with the provision enacted by Parliament. Ratio |
Against the background of the perceived practice of conveyancers, the Extra Division suggested, at p 903G-H, that, if a creditor had to use the calling-up procedure in section 19(1), this would mean that the creditor could use a notice of default where 99% of the debt had been demanded, but would have to use a calling-... |
They did not consider that the statutory framework in sections 19 to 22 necessarily led to that conclusion. Ratio |
Indeed it does not: the substance of the supposed objection dissolves if, contrary to the Divisions assumption, a calling-up notice can be served in cases where the creditor has asked for payment of less than the whole debt. Ratio |
The Extra Division really based their conclusion, that a calling-up notice and a notice of default are alternatives, on their understanding of Professor Hallidays view. Ratio |
They referred to his Conveyancing Law and Practice Vol 2 (second edition, 1997), para 54-05: Where a creditor in a standard security intends to require repayment of the debt thereby secured and, failing such repayment, to exercise any of his powers in respect of a security, he may serve a calling up notice. Ratio |
The court emphasised the word may. Ratio |
But the simple fact is that Parliament used the word shall in section 19(1). Ratio |
Although their Lordships must have accepted the submission of counsel for the bank that shall had to be read in a permissive and not a mandatory sense, they do not explain what there is in the Act, or indeed in authority, to justify that interpretation of section 19(1). Ratio |
For my part, I can see nothing. Ratio |
Moreover, I very much doubt whether Professor Halliday actually intended to say otherwise. Ratio |
It is noticeable that, while the Division emphasised the word may in the passage which they quoted, the author did not. Ratio |
Nor did he say that, alternatively, the creditor may serve a notice of default in such cases. Ratio |
The Division cited the second (posthumous) edition of his Conveyancing Law and Practice (revised by Mr I J S Talman), but the same applies to the first edition, published during his lifetime: Conveyancing Law and Practice Vol 3 (first edition, 1987), paras 39-03, and 39-19 and 39-20. Ratio |
The same also goes for his commentary on the 1970 Act, the first edition of which was published very shortly after the Act was passed. Ratio |
In The Conveyancing and Feudal Reform (Scotland) Act (first edition, 1970), para 1-27; (second edition, 1977), para 1-26, Professor Halliday who was in a position to know said that the provisions for the enforcement of the standard security had posed the most difficult questions of policy for the legislature. Ratio |
In his view sections 19 to 29 incorporated a compromise solution which permits considerable flexibility in procedures but affords reasonable protection to the debtor on essential matters. Ratio |
He went on to describe the calling-up procedure (first edition, para 1-28; second edition, para 1-27), before continuing in the next paragraph: A new additional remedy is provided which permits the creditor to proceed in certain circumstances by way of serving a notice of default. Ratio |
While Professor Halliday was pointing to the wider range of remedies which the new statute made available to the creditor to cater for different situations, there is nothing to show that he considered that serving a notice of default was an alternative to serving a calling-up notice far less, that the section 24(1) pro... |
What Professor Halliday did emphasise and rightly emphasise was the quite different point that a calling-up notice and a notice of default are not mutually exclusive. Ratio |
In other words, a creditor can use both, if that is appropriate. Ratio |
Lord MacLean refers, 1999 SLT 901, 903E-F, to the relevant passage in Professor Hallidays Conveyancing Law and Practice Vol 2, para 54-22. Ratio |
Passages to a similar effect are found in his earlier works. Ratio |
There may indeed be situations where the creditor will want to exercise both rights at the same time and, as section 21(1) shows, there is nothing to prevent this. Ratio |
For example, if the security subjects were deteriorating, the creditor might well wish to serve both a calling-up notice requiring the debtor to pay the debt and a notice of default requiring him to fulfil his repairing obligation. Ratio |
Although the Extra Division drew attention to this point, it does nothing to support their view that a notice of default can be used as an alternative to the calling-up notice. Ratio |
That is an altogether different matter. Ratio |
The auctoritas of Professor Halliday among conveyancers was, and is, immense. PRE |
But, for judges at least, in the end even a word from Professor Halliday would have to yield to the words of Parliament. PRE |
In that event it would also be worth bearing in mind the observation of the Earl of Halsbury LC, that the worst person to construe a statute is the person who was responsible for its drafting, since he is very much disposed to confuse what he intended to do with the effect of the language which in fact has been employe... |
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