HSBC BANK PLC AGAINST JAMES EDWARD COLLINGE AND LEANNE MAVIS KENNEDY
| DUMFRIES SHERIFF COURT |
| Sheriff Principal B A Lockhart | 2014SCDUMF48 CASE NO:B215/13
JUDGMENT OF SHERIFF PRINCIPAL B A LOCKHART In causa HSBC Bank plc Pursuer and Respondent Against James Edward Collinge and Leanne Mavis Kennedy Defenders and Appellants
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Act: C Garden, Solicitor, Edinburgh
Alt: Mr M Currie, Solicitor, Glasgow
________________________________________________________________________
DUMFRIES: 20 August 2014
The Sheriff Principal, having resumed consideration of the cause; Refuses the appeal and adheres to the sheriff’s interlocutor of 23 May 2014 complained of; finds the defenders and appellants liable to the pursuer and respondent in the expenses of the appeal; allows an account thereof to be given in and remit same when lodged to the auditor of court to tax and to report.
Note:
Background to the Appeal
[1] This is a summary application in which the pursuer seeks (One) declarator that the defenders are in default of the Standard Securities granted by them in favour of the pursuer dated 20 December 2004 and 05 June 2006 registered in the Land Register of Scotland on 07 march 2005 and 19 June 2006 respectively under title Number DMF15970 (the Standard Securities) by virtue of their failure to comply with calling up notices dated 11 January 2013, (Two) to grant the pursuers warrant to enter into possession of the heritable subjects known as Whitehill Cottage, Middlebie, Lockerbie, Dumfriesshire, DG11 3JY (Three) to grant decree ordaining the defenders to vacate the subjects (Four) to grant warrant for ejection and (Five) for expenses.
[2] On 23 May this case called before the sheriff for an evidential hearing. Both agents intimated that it was agreed that the hearing should dispense with any witnesses and instead proceed on the basis of only the Joint Minute of Admissions for the Parties and their submissions. The sole issue between the parties was the reasonableness in granting the orders sought by the pursuer.
[3] It was a matter of agreement that the defenders owe sums to the pursuer in terms of two mortgage accounts secured by the standard securities. The pursuer is also owed sums in terms of three personal guarantees granted by the first defender dated 11 November 2005, 12 June 2006 and 17 October 2006, which secured debts of JEC Utility Services Limited to the pursuer. The principal sums guaranteed were £36,000, £200,000 and £80,000 respectively to which interest is due to be added.
[4] The standard securities granted by the defenders secure all sums due to the pursuer by the defenders in terms of the mortgage accounts and the guarantees.
[5] JEC Utility Limited went into liquidation on 22 August 2007. The shortfall due to the pursuer for the company’s liabilities was £187,277.02. By letters dated 18 October 2007 and 26 March 2011 the pursuer demanded payment of the sums due in terms of the guarantees. No payment has been made to the pursuer in respect of the guarantees.
[6] On 11 January 2013 the pursuer served on inter a/ia the defenders a notice calling up the Standard Securities (the Notice) in terms of section 19 of the Conveyancing and Feudal Reform (Scotland) Act 1970 (the 1970 Act). The defenders did not comply with the notice. Accordingly the defenders are in default in terms of their standard securities, in particular in terms of standard condition 9(1 )(a) of Schedule 3 to the 1970 Act.
[7] Prepared on 14 February 2014, and issued 17 February 2014, there is a Report on the market value of the security subjects. In its present condition they are valued at £310,000. The valuation states that in various ways the property in is a poor state of repair and that redevelopment of the property was not completed to the standard required by the local planning authority. No completion certificate has been issued for these works. The valuation report states that if the repairs are carried out and a completion certificate issued the value would increase to £380,000.
[8] As at 22 May 2014 the total sum owed by the defenders to the pursuer in terms of the mortgage accounts is £161,273.33. The total sum due in terms of the guarantees is £240,627.87. The defenders’ total indebtedness to the pursuer is £401,901.20.
[9] The factual matters in the above summary are to be found from consideration of the joint minute which was lodged by the parties. On 9 June 2014 the sheriff granted decree as craved. In the note attached to his interlocutor the sheriff stated:-
“35)1 considered the evidence comprised in the Joint Minute and also the submissions of both parties. My task was to determine whether I am satisfied that it was reasonable in the circumstances of the case to grant the application. In doing so I considered the full circumstances of the case and I had regard to the matters set out in section 24(7) (a) to (e) of the 1970 Act.
36) From that it is clear that the defenders cannot fulfil within a reasonable time the obligations of the standard securities. This week had seen the only proposals made. Both sought that the pursuer agrees to compromise the sum due in terms of the guarantees by over £100,000. The larger proposal envisaged that the pursuer would wait four years for the balance of the offer. While the lower envisaged payment within six months that required the pursuer to discount a further £10,000. Since there is no proposal to pay the balance I can only understand that it is not intended by the defenders to make any further payment to clear the outstanding balance. Whether this is because they are unwilling or are not able is not able to be determined on the information before the court.
37) The lack of supply of financial information regarding the defenders’ financial affairs to the pursuer is significant. It means that the pursuer is unable to assess the quality of the defenders’ proposals in the context of their means and resources. After waiting for so long the pursuer is expected to take the defenders on good faith that they will make the payments proffered.
38) The defenders complain of a lack of counter proposal. It seems to me that when a debtor asks a creditor to compromise a debt, in this case a substantial debt, then in asking the creditor to consider a specific proposal there is some obligation on the debtor to supply the creditor with ancillary financial information so the creditor can take that into account in assessing the reasonableness of the proposal made. The same applied to any expectation of a counter proposal. How can the creditor assist the debtor who is coy, nay unwilling to be upfront about his circumstances?
39) Another factor is the time it has taken to arrive at where parties are during which it is agreed nothing has been paid and no financial information supplied and as I understand until this week no proposal for payment made. While it is approximately 16 months since the formal calling up notice was served the crystallisation of debt that triggered the default occurred almost seven years ago. Assessed on the information before me the pursuer has been forbearing. It is not unreasonable of the creditor to be less inclined after so long, to accept a solution that involves them waiting yet longer while not in control of their own destiny Vis a Vis this debt and the asset secured against it.
40) Ln effect the pursuer has lost faith in any acceptable settlement being agreed. It appears that the only proposals put forward were stimulated by this hearing being imminent. The lack of confidence by the pursuer in the defenders matching their proposal with payment in understandable, especially in the absence of any information to support the proposal, such as commented should be done in Cheltenham & Gloucester v Norgan. It is reasonable that what is otherwise an impasse be ordered to progress.
41) Ln the round after considering all the circumstances including the five specific matters in section 24(7) (a) to (e) I am satisfied it is reasonable to grant the application with expenses as taxed in favour of the pursuer.
42) With regard to the issue of delaying extract as noted by Lord Drummond Young in Hoblyn v Barclays Bank plc the granting of a decree does not preclude the debtor from making proposals, but they will be made in face of the pursuer having his order and thus having the control that the security was designed to give. Accordingly I do not think it is appropriate to suspend decree or to delay extract.”
[10] It is against that decision that this appeal is taken. I heard parties, to suit their convenience, in Airdrie Sheriff Court on 18 August 2014.
SUMBISSIONS FOR THE DEFENDERS AND APPELLANTS
[11] Solicitor for the defenders lodged written submissions in the following terms:-
“1. The learned sheriff in his decision noted at para 36 that, “this week had seen the only proposal made.” In fact there had been a number of proposals made to the respondent prior to the commencement of the action.
2. The proposal made prior to the hearing was as follows: on 20 May the proposal was £75000 within 28 days, with a further 60,000 over four years. On 22 May the proposal was £75000 within 28 days with a further 50,000 within 6 months.
3. It is a matter of agreement that the valuation of the property was as per the valuation report dated 14th February 2014, being £310,000.
4. And similarly that the property has an outstanding mortgage, separate from the sums due under the personal guarantees, of £161,273.33
5. The learned Sheriff in his Note does not address that the proposal made is for almost all of the equity in the property i.e what is proposed is as good as the respondents are reasonably likely to get.
6. In as much as the respondents are concerned with Mr Collinge’s assets, the position is that he has been sequestrated, that is therefore an irrelevant consideration for them. To suggest that they need to know whether he has some other assets which he must presumably have obtained since sequestration would be the equivalent of them wanting to know the assets of the third party. In the circumstances where they have a secured debt the only proper question for the bank, and therefore also for the court in determining whether they have acted reasonably, is the extent of the recovery they will make if they sell the property. Here where the offer is to make payment of the lions share of the equity in the property, and remembering that the valuation is not the actual sale price but a forecast, it might do better or worse the proper question for the court was whether the proposal was reasonable.
7. Similarly, Miss Kennedy is not a signatory of the guarantee; she is merely joint owner of the house and signatory of the security. Her only “liability” here is to the extent of the equity in the property, none of her assets or income are covered by any security in favour of the respondents and these are irrelevant to consideration of whether the proposal is reasonable or not.
8. To take into consideration the total amount of the sum guaranteed, much of which is never going to be recovered in the event of a sale, is to take into account something which is not relevant to the consideration of whether it is reasonable to force removal of the defenders and the sale of the property.
9. In those circumstances the lack of financial information is respectfully not significant.
10. Whilst after the decree is granted the parties can still agree a payment proposal, there is no longer the mechanism for the court to enforce reasonableness on the respondent, they were free to insist on anything whether reasonable or not.”
[12] In these circumstances, solicitor for the defenders asked me to defer extract for a period of six months.
SUBMISSIONS FOR THE PURSUER AND APPELLANT
[13] It was submitted that the issue before the sheriff was whether, on the information before him, he was entitled to express himself satisfied that it was reasonable in the circumstances of the case to grant the respondent’s application. This was a discretionary decision for the sheriff. It could not be said that he had exercised his discretion unreasonably. He had considered all the relevant factors placed before him. Response was made to the appellant’s submissions as follows:-
- Paragraph 1 refers to the Appellants making a number of proposals to settle their liabilities to the Respondent, prior to the commencement of the Court action. In this regard, it is noted that discussions regarding settlement did take place between the parties prior to the commencement of the action. However, it is noted that the valuation of Whitehill Cottage, Middlebie, Lockerbie, Dumfriesshire DG11 3JY (the “Subjects”) to which the Appellants’ proposals relate was issued on 17 February 2014. The Appellants failed to make any proposals to the Respondent following this until 20 May 2014 (three days before the evidential hearing). Additionally, the Respondent was not provided with a copy of this valuation issued on 17 February 2014 until 9 May 2014, when the Appellants’ Inventory of Productions was intimated, despite earlier requests from the Respondent’s agents for a copy. Further, the sums owed to the Respondent in terms of the personal guarantees were demanded on 18 October 2007. It is therefore submitted that the Respondent has allowed the Appellants ample time to make acceptable proposals for the repayment of their liabilities to the Respondent, which they have failed to do. Indeed, the learned Sheriff stated at paragraph 39 of his note that he considers the Respondent had been “forbearing”.
- Paragraphs 2 of the Appellants’ Submissions simply state the proposals which were made by the Appellants on 20 May 2014 and 22 May 2014. These proposals are referred to in the learned Sheriff’s note at paragraphs 11 and 17-19. These proposals were therefore known by the learned Sheriff when he considered the full circumstances of the case. It is also noted that these proposals fall substantially short of the sums owed to the Respondent.
- Paragraph 5 of the Appellants’ Submissions states that the Sheriff’s note does not address that the Appellants’ proposals were for almost all of the equity in the Subjects. It is noted that these proposals were not for the full value of the sums to which the default related, nor for the full equity in the Subjects. The learned Sheriff was aware of the valuation of the Subjects, and the proposals which had been made by the Appellants prior to exercising his discretion. In particular, paragraph 18 of the Sheriff’s note highlights that he was aware of these matters. Further, the valuation notes that substantial work is required to the Subjects before a completion certificate is issued and the valuation increases. The Appellants led no evidence regarding whether any work to remedy the problems had been carried out. The Appellants’ pleadings referred to a separate valuation which was prepared in 2013 which valued the Subjects at £350,000. However, this was not produced.
- Additionally, the 1970 Act states that the Court must have regard to the ability of the debtor to fulfil within a reasonable time the obligations under the standard security in respect of which the debtor is in default. The Appellants have not sought to argue that they are in a position to do so. No payments have been made toward the guaranteed liabilities since they were demanded in 2007.
- Paragraph 6 of the Appellants’ Submissions states that information regarding the First Appellant’s financial circumstances was an irrelevant consideration for the Respondent, on the basis that he had been sequestrated. The Appellants failed to provide the Respondent with financial information, in order that the quality of the Appellants’ proposals might be determined. It is submitted that it therefore could not be said that the financial circumstances of the First Appellant were an irrelevant consideration. Additionally, the sums due under the guarantees were demanded in 2007. There was therefore a substantial period of time prior to the First Appellant’s sequestration where settlement proposals could have been made. Additionally, the Respondent was not aware of the Appellants having taken any steps to sell the Subjects voluntarily.
- It was submitted that any proposals should be supported by financial evidence and reason, and the Pursuer will take an informed decision based on the information provided.No such evidence and reason was provided to support the settlement proposals which were made prior to the evidential hearing. The Appellants failed to provide such information, despite having been requested to do so by the Respondent. In any event, if the Respondent was to have accepted the best proposal made by the Appellants, it would still realise less than it could expect to on the sale of the Subjects.
- Additionally, the Appellants failed to provide any financial information to the Respondent to give it comfort that the Appellants had the means to make the payments referred to in their settlement proposals made on 20 and 22 May 2014. Whilst there was a suggestion that the funds may come from a third party, no evidence of this was provided to the Respondent. Without any such comfort, it is submitted that the Respondent could not accept the settlement proposals, on the basis that any failure to pay would simply have caused further delay and expense.
- Paragraph 7 of the Appellants’ Submissions states that the financial position of the Second Appellant was an irrelevant consideration for the Respondent, on the basis that she is not a signatory to the guarantees. The Respondent accepts that the personal guarantees were granted by the First Appellant only. However, as noted above, the settlement proposals made to the Respondent by the Appellants were not supported by any financial information to support the ability of the Appellants to make these payments. To that extent, information regarding the Second Appellant’s financial circumstances were a relevant consideration.
- Paragraph 8 of the Appellants’ Submissions states that the total amount of the guaranteed sum is not relevant to the question of whether it is reasonable for decree to be granted. It is submitted that the Respondent is entitled to seek to recover all sums owed to it by the Appellants, albeit it can take a commercial decision based on the information before it. If the Respondent was to have accepted the Appellants’ proposals, it would have realised a lesser amount than it can expect to realise on the sale of the Subjects, over a longer period, and with no guarantee that the Appellants can make the payments.
- It is also submitted that the Appellants’ Submissions fail to refer to the fact that the learned Sheriff considered all of the circumstances of the case in deciding that it was reasonable to grant the application, as is made clear in his note. It is submitted that the Court must consider the interests of both the Respondent and the Appellants in determining what is reasonable, as was stated by Lord Justice Evans in Cheltenham and Gloucester Building Society v Norgan [1996] 1 W.L.R. 343 at 356F.”
[14] I was referred to the case of Hoblyn v Barclays Bank plc [2013] CSOH 104, where Lord Drummond Young stated:-
“It is clear on the basis of the productions that in the repossession proceedings the first defenders have done everything required of them by way of service on the pursuer. All of the formalities required in that action have been completed. The fundamental problem for the pursuer is that the house is subject to a standard security…..In these circumstances the first defenders are entitled to enforce the standard security, if necessary by repossessing the house and selling it. The fundamental objectives of the law of heritable security would be frustrated if that course were not available.”
I was informed that his Lordship made this comment having been advised that the Defender would be made homeless if he granted decree against her. In this case, it was a matter of agreement that the Respondent has complied with all requirements imposed upon it by statute. It is submitted that to deprive the Respondent of the ability to enforce its rights as a secured creditor on default would frustrate the objectives of the law of heritable security. This would also leave the Respondent without a remedy. The Appellants had failed to provide evidence that they could make payment of the proposals they put forward, which were for a sum less than the Respondent could expect to recover on the sale of the Subjects. Therefore, it was submitted that it would be unreasonable in the circumstances not to allow the Respondent to exercise its rights.
[15] It was submitted that there are no grounds on which the orders granted by the learned Sheriff should be altered. It would be unreasonable to expect the Respondent to wait any longer to exercise the rights to which it is entitled. I was asked to uphold the sheriff’s judgement and award expenses of the appeal to the respondent.
Decision
[16] The relevant statutory framework is contained within section 24 of the Conveyancing and Feudal Reform (Scotland) Act 1970 (the “1970 Act”), which is headed “Application by creditor to court for remedies on default.” As noted above, the only question which the learned Sheriff was required to determine was the question of whether it was reasonable in the circumstances of the case to grant the orders sought by the Appellants.
- The following provisions are contained within section 24 of the 1970 Act:
(1B) A creditor in a standard security of that kind may, where the debtor is in default within the meaning of paragraph (a), (b) or (c) of standard condition 9(1), apply to the court for warrant to exercise any of the remedies which the creditor is entitled to exercise on a default within the meaning of standard condition 9(1) (a).
(1C) Before making an application under subsection (1B) above the creditor must comply with the pre-action requirements imposed by section 24A of this Act.
(5) The court may, on an application under subsection (1B) above, continue the proceedings or make any other order that it thinks fit; but it may not grant the application unless it is satisfied that—
- the creditor has complied with subsection (1C) above; and
- it is reasonable in the circumstances of the case to do so.
(6) In considering an application under subsection (1B) above where the debtor appears or is represented, the court is to have regard in particular to the matters set out in subsection (7) below. .
(7) Those matters are—
- the nature of and reasons for the default;
- the ability of the debtor to fulfil within a reasonable time the obligations under the standard security in respect of which the debtor is in default;
- any action taken by the creditor to assist the debtor to fulfil those obligations;
- where appropriate, participation by the debtor in a debt payment programme approved under Part 1 of the Debt Arrangement and Attachment (Scotland) Act 2002; and
- the ability of the debtor and any other person residing at the security subjects to secure reasonable alternative accommodation.
Therefore, a Court can only grant an order allowing a creditor in a standard security to exercise the remedies to which it is entitled on default, if certain pre-action requirements have been met, and if it considers it to be reasonable in the circumstances. It was agreed between the parties that the Respondent fulfilled the necessary pre-action requirements.
[17] I accept the submission for the respondent that the sheriff properly considered all the statutory matters to which he was obliged to give attention. He was correct to conclude that his task was to determine whether he was satisfied in the whole circumstances that it was reasonable to grant the respondents application. I refer to MacPhail, Sh Ct Practice, para 18.111:-
“The appellate court may intervene if it is satisfied that the judge did not exercise his discretion at all, or that in exercising it he misdirected himself in law; or misunderstood or misused the evidence or the material facts before him; or took into account an irrelevant consideration; or failed to take into account some relevant consideration; or if his conclusion is such that. Though no erroneous assumption of law or fact can be identified, he must have exercised his discretion wrongly. Expressions which have been judicially employed to describe such a conclusion are “completely” or “plainly wrong”; “wholly unwarranted”; manifestly inequitable£; “unreasonable”; and “unjudicial”.”
[18} I have carefully considered the sheriff’s decision, the submissions for the appellants and the respondent. I have come to the conclusion that it could not be said the discretionary decision by the sheriff could properly described in any of the ways set out in the above paragraph. In my opinion the sheriff exercised his discretion reasonably and I am not prepared to interfere with his decision. I accept the submissions made on behalf of the respondent. In particular I attach weight to the following:-
a) The sheriff properly considered all the matters referred to in section 24(7) (a) to (e) of the 1970 Act.
b) It could not be said that the appellants were in a position to fulfil their obligations within a reasonable time. The two offers which had been made involved the respondent in accepting a substantial compromise.
c) There was no evidence available to the sheriff to demonstrate how the respondents could fulfil either of the offers which had been made. No assessment could be made of the financial quality of the offer because there was no information available as to how funds would be made available on the dates proposed.
d) The provision of financial information was key to the respondent assessing the quality of the offer made to provide comfort to the respondent if it chooses to accept the offer. There was no information to support the proposals made.
[19] 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 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
[20] 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. I have awarded the expenses of the appeal to the pursuer and respondent.