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These cases are cited in Gloag and Henderson, Law of Scotland (12th ed, 2007), para 37-09, fn 137 for the proposition that failure to pay interest under a loan secured is a failure to comply with a requirement of the security for the purposes of standard condition 9(1)(b): see also Cusine and Rennie, Standard Securitie... |
The Extra Division in Bank of Scotland v Millward 1999 SLT 901 relied for its conclusion that standard conditions 9(1)(a) and 9(1)(b) were alternative and not mutually exclusive on Professor Hallidays statements in his Conveyancing Law and Practice (2nd ed, 1997), para 54-05 that where a creditor in a standard security... |
It also relied on a passage in the latter paragraph where Professor Halliday said that where there was serious default in payment of interest and capital and the debtor has abandoned the subjects, which are deteriorating, service of a notice of default may be the quickest approach to a sale of the security subjects. Ra... |
Lord Rodger doubts whether, when he used the word may, Professor Halliday intended to indicate that the word shall in section 19(1) was to be read in a permissive, and not a mandatory, sense. Ratio |
But a further indication that it was indeed Professor Hallidays view that this word was to be read in the permissive sense is to be found in a passage from his commentary on the 1970 Act, The Conveyancing and Feudal Reform (Scotland) Act 1970 (2nd ed, 1977), at para 10.19, where he discussed the circumstances in which ... |
Default in payment of interest or of a periodical instalment of capital and interest, or breach of an obligation under standard conditions 1, 2, 3 or 5, or failure to implement an obligation undertaken in the personal obligation or in a variation of the standard conditions, are obvious examples. Ratio |
The only qualification is that the failure should be remediable. Ratio |
Professor Halliday is not alone in failing to notice the distinction between circumstances in which a calling-up notice is required and those where recourse must be had instead to a notice of default or a section 24 application to the sheriff court. Ratio |
Cusine and Rennie say in their introduction to para 8.14 that there is some doubt about what condition 9(1)(b) means, the question being whether a failure to comply with any other requirement arising out of the security is wider than a failure to comply with something mentioned in a notice of default. Ratio |
In their view this phrase means a failure to comply with any condition of the standard security, or the standard conditions, ie anything except failure to comply with a calling-up notice. Ratio |
But I understand them to accept that the passage which they quote from Professor Hallidays Commentaries is an accurate statement of the effect of the 1970 Act. Ratio |
This is certainly the predominant view that is taken in the textbooks. Ratio |
The approach is to view the Act as providing the creditor with a basket of remedies and then providing him with the calling-up notice, the notice of default and the application to the sheriff court for a warrant as different routes by which they can be obtained. Ratio |
In The Laws of Scotland: Stair Memorial Encyclopaedia: Conveyancing (2005), paras 223-224 it is stated that a calling-up notice is to be used where the creditor wants payment of all the debt, and that a notice of default is used where there has been failure to comply with any requirement of a security. Ratio |
The word other which the statute uses in standard condition 9(1)(b) is omitted from the reference to the notice of default, suggesting that this is a mechanism that can be used for any failure to comply with a requirement of the security. Ratio |
Cusine and Rennie, Standard Securities, para 8.03 say that a creditor who wishes the debt to be discharged by payment of the amount due or performance of an obligation ad factum praestandum may serve a calling-up notice, but that it would also be appropriate to serve a calling-up notice in respect of a default which ca... |
The editors of the 12th edition of Gloag and Henderson, Law of Scotland, in their carefully re-written chapter on Rights in Security, para 37.09 say that where the creditor in a standard security intends to require discharge of the debt secured and, failing discharge, to exercise any power conferred by the security to ... |
They too omit the word other before the word requirement when they summarise the circumstances when a notice of default may be used. Ratio |
Gretton and Reid, Conveyancing (3rd ed, 2004), para 19.36, referring to Bank of Scotland v Millward 1999 SLT 901, say that the calling-up procedure and the notice of default procedure are often alternatives, and that in practice there is a certain tendency amongst institutions to use the former for residential standard... |
They do however note that the law in this area is of labyrinthine complexity: Conveyancing 2009, p 179. Ratio |
There may indeed be cases where the calling-up procedure and the notice of default procedure are both available as alternatives. Ratio |
The example given by Professor Halliday in Conveyancing Law and Practice, para 54.22, where there has been serious default in payment of interest and capital and the debtor has abandoned the subjects, which are deteriorating, may be such a case. Ratio |
But a case such as the present, where the creditor is faced with a defaulting debtor who is in personal possession of the subjects and intends to seek an order for the debtors summary ejection under section 5 of the 1894 Act, cannot be dismissed so easily. Ratio |
Treating a calling-up notice and a notice of default as alternatives between which the creditor may choose at his option runs into serious difficulty when this is tested against the section 5 requirement that ejection is a remedy that may only be sought where the debtor is in default after formal requisition. Ratio |
The calling-up procedure satisfies that requirement. Ratio |
The notice of default procedure and the warrant procedure referred to in section 24, without more, do not. Ratio |
The answer to the problem is to be found in the words of the statute, to which all too frequently insufficient attention appears to have been given. Ratio |
The word default is used in standard condition 9 to describe three quite different circumstances. Ratio |
In Laird v Securities Insurance Co Ltd 1895 22 R 452,461 Lord Adam said that this meant nothing more or less than that the debtor had failed to pay. PRE |
But the word takes its meaning from its context. PRE |
Each of the circumstances referred to in standard condition is treated as a default for the purposes of Part II of the 1970 Act. PRE |
There is a default for these purposes where the proprietor of the subjects has become insolvent, even though there has not yet been any failure in payment of any part of the debt which is secured by the standard security: standard condition 9(1)(c). PRE |
That there is a difference between the defaults contemplated by standard conditions 9(1)(a) and 9(1)(b) is indicated by the word other which appears before the words requirement arising out of the security in standard condition 9(1)(b). PRE |
In other words, standard condition 9(1)(a) refers to the kind of requirement which is to be dealt with by serving a calling-up notice. PRE |
Standard condition 9(1)(b) refers to any requirement which is not to be so dealt with. PRE |
To understand the difference between them it is necessary to refer back to section 19, in which the calling-up procedure is described. PRE |
Section 19(1) states that when a creditor in a standard security intends to require discharge of the debt thereby secured and, failing that, to exercise any of the powers which he may appropriately exercise on the default of the creditor within the meaning of standard condition 9(1)(a), he shall serve a notice calling-... |
The word debt is widely defined in section 9(8)(c), which must be read together with section 9(3) which provides that the grant of any right over land or an interest in land for the purpose of securing any debt by way of a heritable security shall only be capable of being effected by standard security. STA |
It includes any obligation due, or which will become due, to pay or repay money. STA |
It also includes any obligation ad factum praestandum. STA |
No distinction is drawn between obligations to pay the whole or part of the principal, the payment of the principal by instalments or the payment of interest or capital. STA |
So the word debt in section 19(1) refers to anything and everything that is secured by the grant of the interest referred to in the standard security. STA |
Where the Act means to refer to the whole amount due it says so: see section 18(4). STA |
The word debt is not so limited. STA |
Section 21(1) introduces the valuable innovation referred to in the introduction to the commentary on the Act in Current Law Statutes. Ratio |
It applies where the debtor is in default within the meaning of standard condition 9(1)(b) and the default is remediable. Ratio |
As standard condition 9(1)(b) refers to a failure to comply with any other requirement arising out of the security, this section must be taken to refer to defaults other than in respect of the debt secured by the standard security. Ratio |
Content for its application is to be found in the requirements that are set out in standard condition 1 (maintenance and repair), standard condition 2 (completion of buildings), standard condition 3 (observance of conditions in title) and standard condition 5 (insurance) and any other similar conditions that may have b... |
It was a weakness of the previous law that the steps that might be taken to achieve this were not clearly spelled out in the statutes. Ratio |
The innovation is broadened by giving the creditor the right under section 24(1) to apply to the court for a warrant to exercise any of the remedies which he is entitled to exercise on a default within the meaning of standard condition 9(1)(a). Ratio |
The Bank is this case has been seeking all along to require discharge of the debt secured by the standard security. Ratio |
Mr McIlvride said that its position was that a calling-up notice was appropriate for use where the property had been abandoned and the creditor could exercise the powers referred to in standard condition 10 immediately. Ratio |
If the debtor was still in occupation it was preferable to proceed under section 24 and apply to the court for a warrant to exercise them. Ratio |
Unfortunately this approach overlooks the fact that the summary process of ejection, to which resort may be needed in these circumstances, is available only under section 5 of the 1894 Act and then only if the proprietor is in default after a formal requisition has been served on him. Ratio |
Section 19(1), properly understood according to its own terms and read together with standard condition 9(1)(a), addresses this problem. Ratio |
The route that standard condition 9(1)(b) indicates does not, as it is designed to deal with requirements arising under the standard security other than the discharge of the debt secured by it. Ratio |
So even if the Bank had taken the further step of serving a notice that met the requirements of section 5, it would not have been entitled to the order it seeks as it did not serve a calling-up notice as required by section 19(1). Ratio |
I agree with the judgments of Lord Hope and Lord Rodger. RPC |
I agree that this appeal should be allowed, for two reasons. Ratio |
The first formed no part of counsel for the appellants argument but emerged during the hearing before us. Ratio |
Section 19(1) of the Conveyancing and Feudal Reform (Scotland) Act 1970 requires that a creditor in a standard security who intends to require the discharge of the debt secured and, failing that, to exercise any of his enforcement powers shall serve a calling up notice. Ratio |
Although we were referred to textbooks and authorities since the Act which have assumed that shall means may, we were not referred to anything in the Report of the Halliday Committee (Cmnd 3118), which led to the Act, suggesting that it was intended that a creditor could by-pass the calling up procedure required by sec... |
If practice south of the border is anything to go by, the policy makers whose decisions lead to legislation are not actually responsible for the words which Parliamentary counsel use in translating their instructions into statutory language. Ratio |
I would therefore be surprised if Professor Halliday were responsible for the words used in the Act. Ratio |
This makes the absence of any prior recommendations on this point the more telling. Ratio |
Without them, we need only focus on the actual language of the Act. Ratio |
Although section 24 says that a creditor may apply to the court for a warrant if the debtor is in default within the meaning of standard condition 9(1)(b) or (c), it does not say that a default within the meaning of standard conditions 9(1)(b) or (c) is to be equated with a default within the meaning of standard condit... |
In other words, it does not displace the requirements of section 19(1). Ratio |
In policy terms, it would be very surprising if it did. Ratio |
Why provide for the calling up procedure at all, if it can simply be got round by going to court under section 24? There is obvious good sense in a policy which requires prior notice to the proprietors that a creditor intends to call in his security if the debt is not paid. Ratio |
This case is a good example. Ratio |
We do not know whether these debtors could have found a way of discharging their debts had they and their wives been told at the outset that their homes were at risk. Ratio |
In some cases, no doubt, it would be quite impossible. Ratio |
But in others, there might be enough surplus value (what we south of the border would call equity) in the home to raise alternative finance to pay off the loan or the home might be sold to do this before the debt had escalated to astronomical proportions as it has done here. Ratio |
The Bank, of course, has every interest in allowing the debt to mount up until it gets close to the value of the home. Ratio |
Without the calling up procedure the creditor can simply allow the debt to escalate without suffering any disadvantage. Ratio |
There has to be something to make him declare his hand at a time when the debtor may be able to do something about it. Ratio |
Secondly, in cases like this, there has to be power actually to get the occupiers out of the premises. Ratio |
Without this the other remedies, such as the power of sale, will not work. Ratio |
As I understand it, the only way in which this can now be done is under section 5 of the Heritable Securities (Scotland) Act 1894. Ratio |
This requires a formal requisition, at least for repayment of the principal. Ratio |
The calling up procedure supplies this, although no doubt there are other ways. Ratio |
The policy is the same. Ratio |
A debtor should be given an opportunity of remedying his default before he is dispossessed. Ratio |
It is not much to ask. Ratio |
Who knows whether these wives had sums in their own bank accounts which might have enabled them to discharge these debts had they been told? It is sexist simply to assume that they did not. Ratio |
It is such an injustice to deprive these wives of their homes without even asking whether they might have had the resources to discharge their husbands debts that I cannot believe that, even in 1970, Parliament could have contemplated it. Ratio |
We have been given no reason to think that it did. Ratio |
These reasons are simply a supplement to the reasons given by Lord Hope and Lord Rodger. RPC |
In agreement with them both, therefore, I would allow this appeal. RPC |
I agree that this appeal should be allowed on the simple basis that, as Lord Rodger has demonstrated, Bank of Scotland v Millward 1999 SLT 901 was wrongly decided. Ratio |
The effect of section 19(1) of the Conveyancing and Feudal Reform (Scotland) Act 1970 is that a creditor in a standard security who intends to require discharge of the secured debt and, failing that discharge, intends to exercise any power conferred by the security to sell any subjects of the security or any other powe... |
(My emphasis.) Ratio |
In Bank of Scotland v Millward the Inner House construed shall as if it said may. Ratio |
However, it gave no convincing reason for doing so and there is in my opinion no warrant for construing the word shall in that way in the context of the Act. Ratio |
As I see it, the purpose of the subsection was to ensure that the proprietors of secured property should be given proper notice of the creditors intention to take possession of or to sell the property. Ratio |
The giving of such a notice is a simple step and would have saved years of litigation in this case. RPC |
The Bank did not give such a notice on the facts of this case. RPC |
It follows that, although this point was not taken on behalf of the appellants until it arose in the course of the argument in this appeal, for the reasons given by Lord Rodger, I would allow the appeal on that ground. RPC |
The issue in this case is what is meant by the word violence in section 177(1) of the Housing Act 1996. Ratio |
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