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Happily, however, in my view there is no sufficient reason to conclude that Professor Halliday intended to say anything that is inconsistent with the text of the statute. Ratio |
Finally, it is noticeable that serving a calling-up notice under section 19 entitles the creditor to exercise a wider range of powers on default than those that are available on default after service of a notice of default under section 21. Ratio |
Compare section 20(1) with section 23(2). Ratio |
The disparity is instructive: if Parliament had really intended that the two remedies should operate as alternatives in this particular situation, it might have been expected to align the rights and powers available to the creditor to deal with it. Ratio |
For these reasons I would overrule the decision in Bank of Scotland v Millward 1999 SLT 901 on this point and hold that, in a case falling within the scope of section 19(1), the creditor must serve a calling-up notice. Ratio |
That interpretation ensures that all debtors are treated alike and, in particular, that they are all given the two-month period in which to pay, that is specified in the calling- up notice. Ratio |
Professor Halliday stressed that, in enacting the enforcement powers, Parliament had been concerned to strike the right balance between creditors and debtors. Ratio |
Interpreting section 19(1) in this way ensures that Parliaments policy on this important matter is given effect. Ratio |
Conclusion RPC |
In these cases case the Bank did not serve a calling-up notice back in 1998. Ratio |
Mr McIlvride was unable to say why. Ratio |
He was also unable to say why they had not done so at some later stage when the cases had become bogged down in technical arguments about section 24 of the 1970 Act and section 5 of the 1894 Act. Ratio |
Unfortunately, for all the reasons which I have given, the Bank have pursued the wrong course. Ratio |
I would therefore allow the appeals, recall the interlocutor of the Extra Division, sustain the first plea-in-law for the first defender and the plea-in- law for the second defender and assoilzie both defenders in each of the appeals. Ratio |
It is only right that I should acknowledge the assistance that I have derived from the excellent submissions of counsel on both sides. RPC |
I agree with Lord Rodger that these appeals must be allowed and I would make the orders that he proposes. Ratio |
I also agree with him that, on a correct analysis of the relevant provisions of the Conveyancing and Feudal Reform (Scotland) Act 1970 (the 1970 Act), the Bank pursued the wrong course when they decided to enforce these securities. Ratio |
It has to be recognised however that this conclusion runs counter to the way these provisions have been widely understood and applied in practice for the past four decades. Ratio |
So I should add some words of my own to explain why I too have come to be of that view. Ratio |
The 1970 Act was the product of a movement for reform of conveyancing law and practice which had been embodied in a series of reports, of which the relevant one for present purposes was the Report of the Halliday Committee (Cmnd 3118) which was published in December 1966. Ratio |
It contained proposals for the modernisation and simplification of the existing system which formed the basis for the measures enacted in Parts II to IV of the 1970 Act. Ratio |
Among the proposals in the Halliday Report was the introduction of a new statutory security. Ratio |
It was to be incompetent to create a heritable security by any other means after 29 November 1970, when the relevant provisions were to come into force six months after the Act was passed: section 54(2)(a). Ratio |
The new standard security was to follow one of the forms prescribed in Schedule 2. STA |
Form A was for use where the personal obligation was included in the deed. STA |
It contains an obligation to pay the debt. STA |
Form B was for use where the personal obligation was included in a separate instrument or instruments. STA |
It contains no obligation to pay the debt and is limited to creating the security, but the nature of the debt and the instrument or instruments constituting it must be referred to and sufficiently identified. STA |
The introduction to the commentary on the Act in Current Law Statutes noted that a valuable innovation under section 11 was the incorporation in the new security of the standard conditions prescribed in Schedule 3, unless conventionally varied. STA |
They were to regulate every standard security. STA |
The import of the form of bond and disposition in security prescribed was much more limited. STA |
Absent special agreement to the contrary, the creditor could insure the subjects against all loss by fire and recover the premiums from the debtor, but it was not until he had entered into possession that he was given any statutory powers of management: Conveyancing (Scotland) Act 1924, section 25(1)(a). STA |
It has been suggested that the creditor was entitled to object to any act which diminished the security: Gordon, Scottish Land Law (2nd ed, 1999), para 20- 12. Ratio |
Where the security was constituted by way of ex facie absolute disposition, a back letter would typically contain obligations on the debtor such as to keep the subjects in good repair or to observe title conditions. Ratio |
It would also set out the terms on which the ex facie absolute owner was entitled to enter into possession in the event of the debtors default in the fulfilment of any of his obligations: Gordon, para 20-100. Ratio |
But the benefit of incorporating the standard conditions was that everything that was relevant to the maintenance and enforcement of the security was set out in the statute. Ratio |
It is plain that much thought was given to the design of the forms, which were supplemented by the seven notes annexed to Schedule 2, and to the content of the standard conditions. Ratio |
These were matters of particular interest to the conveyancer, whose expertise lies the framing of deeds that give effect to the transaction that the client wishes to enter into and will meet the requirements for registration. Ratio |
A conveyancer in practice deals mainly with the sale and purchase of heritable property: Sinclair, Handbook of Conveyancing Practice in Scotland (3rd ed, 1995), para 1.1. Ratio |
His task is usually complete when the deed that transfers title to the purchaser or the deed that creates the heritable security is registered. Ratio |
What to do if a creditor has to enforce his security because the debtor has failed to perform his obligations under it has normally passed to someone else. Ratio |
The draftsman of the 1970 Act had to consider this problem, however, and the relevant provisions are to be found in sections 19 to 28 and in standard conditions 8 to 11. Ratio |
Section 19 provides for the calling-up of the security, and section 20 sets out the rights of the creditor if the debtor is in default in failing to comply with the calling-up notice. Ratio |
Section 21 introduces what the commentator in Current Law Statutes described as an entirely new remedy, the notice of default. Ratio |
These provisions need to be read in the light of standard condition 9(1), which provides: The debtor shall be held to be in default in any of the following circumstances, that is to say (a) where a calling-up notice in respect of the security has been served and has not been complied with; (b) where there has been a fa... |
The circumstances listed in standard condition 9(1) are not presented as alternatives which are exclusive of each other. Ratio |
Necessarily so, as all three circumstances could be present in the event of the debtors insolvency. Ratio |
But, as the wording indicates, they are distinct circumstances. Ratio |
The question that these appeals give rise to is whether a creditor who wishes to enforce the security to obtain performance of the debt for which security was given can choose whether to proceed by way of a calling-up notice or may proceed instead on the basis that the debtor is in default under standard condition 9(1)... |
Finding the right answer to this question is important if the creditor wishes, as the Bank does in this case, to obtain an order to eject a debtor who is in personal occupation of the subjects of the security under section 5 of the Heritable Securities (Scotland) Act 1894, which applies to standard securities by virtue... |
That section applies if the debtor has made default in due payment of the principal after formal requisition. Ratio |
It is not in doubt that a calling-up notice which is served under section 19 of the 1970 Act is a formal requisition for the purposes of section 5 of the 1894 Act. Ratio |
But the kind of default referred to in standard condition 9(1)(b), which is the route that the Bank has chosen to enforce the securities in this case, does not require the service of a calling-up notice. Ratio |
The requirements of section 5 could have been met by serving a notice of default which was appropriately worded, but the Bank did not regard this as a step that needed to be taken. Ratio |
Mr Summers QCs case for Mr and Mrs Wilson was that the Bank had failed to serve on them a document that could be described as a formal requisition for the purposes of section 5 of the 1894 Act. PRE |
He set out his argument in this way. PRE |
Summary ejection by a heritable creditor of a proprietor with a valid and subsisting title is not possible apart from section 5: Inglis's Trustees v Macpherson 1911 2 SLT 176, 177-178, per Lord President Dunedin; Craigie, Scottish Law of Conveyancing; Heritable Rights (1899), p 949. PRE |
If there is no formal requisition within the meaning of that section, the proprietor cannot be ejected. Ratio |
The word formal is not defined in the 1894 Act, but it should be understood as requiring the creditor to provide full details of the security to the proprietor so that the basis for the demand is made clear. Ratio |
What will be required to achieve that clarity will depend on the circumstances of the case. Ratio |
In this case the absence of any reference to the security in the Banks demand letters gave the misleading impression that this was a demand that was made of the husbands only, in respect of their obligations as partners for partnership debt: see para [6] where their terms are set out by Lord Rodger. Ratio |
No such letter was sent to the wives, and there was no mention in the letters of their obligations under the standard securities. Ratio |
In the Inner House this argument was rejected by the Extra Division (Lords Nimmo Smith, Reed and Drummond Young): 2009 SLT 729, paras 39-44. Ratio |
In para 44, delivering the opinion of the court, Lord Nimmo Smith said: We agree with the submission by counsel for the bank that the sheriff erred in holding that warrant for ejection can only be granted if a formal requisition of payment has been made in terms of section 5 of the 1894 Act. Ratio |
For the reasons given above, warrant for ejection may competently be granted where the debtor in a standard security is in default in terms of standard condition 9(1)(b). Ratio |
The only voucher that is required is a Schedule 7 certificate. Ratio |
No separate requisition is required. Ratio |
The effect of section 24 of the 1970 Act is that such a certificate constitutes a formal requisition for the purposes of section 5. Ratio |
In any event there is no difference between these provisions. Ratio |
The requirement in a notice of default is the same as a requisition. Ratio |
The Schedule 7 certificate referred to in this passage is the certificate that the creditor may lodge in court under section 24(2) of the 1970 Act. Ratio |
If it contains the information required by the Schedule, which includes specification of the standard security in respect of which the default is alleged to have occurred and full details of the default, it will be prima facie evidence of the facts founded on as the default. Ratio |
These details were given in the certificates of default that the Bank lodged in January and February 2006, long after the actions were served in April 1998. Ratio |
They were not to be found in the demand letters which were sent to the husbands in June 1995. Ratio |
The propositions which I have quoted from the Extra Divisions opinion do not fit easily with the concept of a formal requisition as an essential preliminary for the taking of proceedings for ejection under section 5 of the 1894 Act. Ratio |
This was explained by Gloag and Irvine, Law of Rights in Security (1897), p 98. Ratio |
After noting that a creditor was entitled to remove the debtor by an action of removing in the Court of Session (see, eg, Blair v Galloway 1853 16 D 291), the authors said that no-one was entitled to make rules by contract which tend to establish a diligence different from that established by law and that extreme power... |
But the powers of a creditor in this respect have been enlarged by the Heritable Securities Act, 1894. Ratio |
It is there provided that where a debtor is in the natural possession of the lands covered by the security, or a part thereof, and has made default in payment of the interest under the security, or of the principal after a formal requisition for payment, the creditor may take proceedings to eject him as if he were an o... |
That is to say, it is presumed, he may bring a summary action of removing in the sheriff court. Ratio |
The requirement that there should be a formal requisition or demand for payment was not new. Ratio |
Section 119 of the Titles to Land Consolidation (Scotland) Act 1868 made provision for the service of a demand for payment in the form of No 2 of Schedule FF, which is headed Form of Schedule of Intimation, Requisition and Protest. Ratio |
The essential requirement of the formal requisition referred to in section 5 of the 1894 Act is that the proprietor should be put on notice before summary proceedings for possession are brought against him that the principal sum due under the bond and disposition in security is due for payment and that, in the event of... |
The reference to default in payment after formal requisition in section 5 makes it clear that the requisition must come first. Ratio |
The default occurs if, and only if, the demand that it sets out is not complied with. Ratio |
The Extra Divisions conclusion that the requirement for a formal requisition was met by the lodging of the Schedule 7 certificates eight years after the raising of these actions seems hard to understand in the light of that background. Ratio |
But the point is the same however long or short the interval was between the raising of the actions and the lodging in court of the certificates. Ratio |
Unless there was clear wording in the 1970 Act to support it, it would seem that the Extra Division ought to have held that the statutory requirement was not satisfied because Mr and Mrs Wilson were not put on notice before the actions were raised that the Bank was proposing to enforce the security. Ratio |
Section 5 of the 1894 Act was not amended by the 1970 Act, so that section is left to speak for itself. Ratio |
It cannot be said that the change in the timing of the requirement that follows from the Extra Divisions decision has been addressed directly. Ratio |
Section 32 of the 1970 Act provides, however, that the provisions of any enactment relating to a bond and disposition or assignation in security shall apply to a security, except in so far as such provisions are inconsistent with the provisions of Part II of that Act. Ratio |
This makes it necessary to look more closely at the wording of these provisions. Ratio |
It has to be said that it was no part of Mr Summerss argument that the Bank had pursued the wrong course by relying on a standard condition 9(1)(b) default and applying to the sheriff court under section 24 instead of serving a calling-up notice. Ratio |
He concentrated on the Banks failure to serve a further document which could be regarded as a formal requisition before the actions were raised. Ratio |
It was Mr McIlvrides attempt, in a very able argument, to answer this point that led to the scrutiny of the provisions of Part II which has led in turn to the conclusion that the Banks error can be traced back to their choice of remedy and to the conclusion, too, that the passage in Lord MacLeans opinion in Bank of Sco... |
It is perhaps worth noting that the point that Lord MacLean made in Bank of Scotland v Millward had already been considered in the sheriff court. Ratio |
In United Dominions Trust Ltd v Site Preparations Ltd (No 1) 1978 SLT (Sh Ct) 14 and United Dominions Trust Ltd v Site Preparations (No 2) 1978 SLT (Sh Ct) 21 it was argued that a failure to pay interest was not a failure to comply with any other requirement arising out of the security as required by standard condition... |
It was said that the liability to pay interest arose out of the existence of the debt and that the appropriate procedure to follow was the calling-up procedure. Ratio |
In the first case Sheriff DB Smith said at p 16 that it would be a very strained interpretation of standard condition 9(1)(b) to hold that a failure to pay interest was not a failure to comply with the requirement arising out of the security. Ratio |
In the second Sheriff Wm C Henderson said at p 23 that the requirements to pay interest and/or capital were every bit as much requirements arising out of the security as the other standard conditions incorporated by reference in the security documents. Ratio |
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