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ONESAVINGS BANK PLC AGAINST JOHN BURNS AND ANOTHER


Submitted: 30 March 2017

SHERIFFDOM OF GRAMPIAN, HIGHLAND AND ISLANDS AT BANFF

[2017] SC BAN 20

B22/15

JUDGMENT OF SHERIFF PHILIP MANN

 

In the cause

 

ONESAVINGS BANK PLC, Reliance House, Sun Pier, Chatham, ME4 4ET

 

Pursuers

 

Against

 

JOHN BURNS, OTHERWISE KNOWN AS JOHN GRANVILLE BURNS, The Old School, Bogton Row, Forglen, Turriff, AB53 4JJ

First Defender

and

 

RHODA JOHAN SKINNER OR BURNS, OTHERWISE KNOWN AS RHONA JOHAN SKINNER OR BURNS, The Old School, Bogton Row, Forglen, Turriff AB53 4JJ

Second Defender

 

Pursuers:   Collins, Solicitor

Defenders:   Stalker, Advocate

 

Banff, 30 March 2017

The sheriff, having resumed consideration of the cause, sustains the defenders’ first plea in law, Finds that the pursuers have no title to sue and dismisses the application; reserves the question of expenses meantime and assigns that question to a hearing on 5 May 2017 at 10:00am within Banff Sheriff Court, Low Street, Banff.

 

Note

Introduction

[1]        This is a summary application in which the pursuers seek (1) declarator that they are entitled to enter into possession of the subjects known as The Old School, described in the instance and hereafter referred to as “the property”, and to exercise in relation thereto all powers competent to a heritable creditor including the power of sale, all in terms of the Conveyancing and Feudal Reform (Scotland) Act 1970 (“the 1970 Act”); (2) warrant in terms of section 24(1B) of the 1970 Act to exercise the remedies a creditor is entitled to exercise on a default, including the power of sale of the property; and (3) warrant for ejection (this latter, although not specified in the crave, being a remedy in terms of section 5(1) of the Heritable Securities (Scotland) Act 1894 (“the 1894 Act”), said section being referred to in article 4 of condescendence).

[2]        The Pursuers sue as creditors in a standard security granted by the defenders over the property in favour of GMAC-RFC Limited recorded in the appropriate Division of the General Register of Sasines on 1 August 2007.  They claim title by virtue of (one) an assignation by GMAC-RFC Limited in favour of J P Morgan Chase Bank National Association recorded as aforesaid on 22 September 2008 and (two) an assignation by J P Morgan Chase Bank National Association in their favour recorded as aforesaid on 27 November 2012.

[3]        The defenders challenge the pursuers’ title to sue.  Their first plea in law is in the following terms:

“The Pursuers having no title et separatim no interest to sue in terms of the standard security et separatim assignations relied upon, the action should be dismissed.”

 

[4]        Although they have no plea in law directed specifically to the question of reasonableness, the defenders also maintain that it is not reasonable, in terms of section 24(5) of the 1970 Act, for the court to grant the remedies which the pursuers seek.  Their position on that issue is set out in their answer to article 5 of condescendence.

[5]        On 10 March 2017 I heard parties in debate on the defenders’ first plea in law.  The parties also lodged a joint minute of admissions and I heard the evidence of the first defender on the question of reasonableness.  Despite the lack of a plea in law for the defenders directed to that question the pursuers clearly accepted that this was a live issue for my determination in the event that I found for the pursuers on the question of title to sue.  I think that that was a proper concession.  Section 24(5) of the 1970 Act requires that the court be satisfied that it is reasonable to grant the order.  Accordingly, it is for the pursuers to satisfy the court on that issue, whether or not the defenders specifically raise it or, having raised it, fail to state a relevant plea in law, rather than for the defenders to satisfy the court to the contrary.  This is encapsulated in the pursuers’ third plea in law which states, inter alia:

            “it being reasonable to do so, decree should be granted as craved”

The onus on the pursuers is to see to it that there is placed before the court evidence that is capable of satisfying the court on that issue.  The task for the court thereafter is to assess all of the evidence adduced by both parties and to come to a view as to whether or not, in the whole circumstances disclosed by the evidence, it is reasonable to grant the orders.

[6]        At the hearing the pursuers were represented by Mr Collins, solicitor.  The defenders were represented by Mr Stalker, advocate.  Mr Stalker helpfully lodged a written note of argument directed to the defenders’ first plea in law and I am grateful to him for that.

 

Title to Sue

[7]        The defenders’ attack on the pursuers’ title to sue was based on the terms of section 14 of the 1970 Act and Form A of, as supplemented by note 2 to, schedule 4 thereof.

[8]        Section 14 of the 1970 Act is in the following terms:

“(1) Any standard security duly registered or recorded may be transferred, in whole or in part, by the creditor by an assignation in conformity with Form A or B of Schedule 4 to this Act, and upon such an assignation being duly registered or recorded, the security, or, as the case may be, part thereof, shall be vested in the assignee as effectually as if the security or the part had been granted in his favour.”

 

[9]        Form A is in the following terms:

“I, A.B. (designation), in consideration of £       hereby assign to C.D. (designation) a standard security for £       (or a maximum sum of £       , to the extent of £       being the amount now due thereunder; in other cases describe as indicated in Note 2 to this Schedule) by E.F. in my favour (or in favour of G.H.) recorded in the Register for …….on ……. (adding if necessary, but only to the extent of £       of principal); With interest from ……. [To be attested]

 

[10]      Note 2 is in the following terms:

“In an assignation, discharge or deed of restriction, (1) a standard security of an uncertain amount may be described by specifying shortly the nature of the debt or obligation (e.g. all sums due or to become due) for which the security was granted, adding in the case of an assignation, to the extent of £       being the amount now due thereunder and [remainder of note being irrelevant for present purposes]”.

 

[11]      Mr Stalker acknowledged that the foregoing provisions had to be read along with section 53(1) of the 1970 Act which is in the following terms:

“It shall be sufficient compliance with any provisions of this Act which require any deed, notice, certificate or procedure to be in conformity with a Form or Note, or other requirement of this Act, that that deed, notice, certificate or procedure so conforms as closely as may be, and nothing in this Act shall preclude the inclusion of any additional matter which the person granting the deed or giving or serving the notice or giving the certificate or adopting the procedure may consider relevant”

 

[12]      Mr Stalker maintained that the assignations narrated in paragraph [2], supra, both being exactly the same in terms of style and content, did not conform to the statutory form and were therefore incapable of vesting the security in the pursuers as effectually as if the security had been granted in their favour.

[13]      The assignations, including the one in favour of the pursuers, assigned to the grantee:

“the Standard Securities granted by the respective parties whose names are specified in Column 2 of the Schedule annexed and signed as relative hereto in favour of [GMAC-RFC Limited] for all sums due, to the extent of all sums now due or at any time or times hereafter to become due under the respective Standard Securities, the creditor’s interest in which is currently vested in the Transferor, the said Standard Securities being recorded in the Register for the County specified in the relative entry in Column 4 of the said Schedule on the date specified in the relative entry in Column 5 of the said Schedule.”

 

[14]      Mr Stalker advanced two reasons for saying that the assignations, including the one in favour of the pursuers, did not conform to the statutory form.  The first was that the statutory provisions did not envisage an assignation of multiple standard securities by way of a single deed.  He accepted that section 6(c) of the Interpretation Act 1978 provided that “unless the contrary intention appears…..words in the singular include the plural” and vice versa, But, he maintained that, inter alia, form A and the notes to schedule 4 of the 1970 Act did, in fact, indicate a contrary intention by requiring the drafter of the deed to specify various matters particular to the standard security in question.  This suggested clearly that single assignations of single securities were envisaged.  This, he said, was not surprising because, as George Gretton (then Reader in Law, now Professor) suggested in his article, Assignations of All-Sums Standard Securities 1994 SLT 207, trading of debt assets and the sale of mortgage portfolios were not common at the time of the drafting of the 1970 Act.  Mr Stalker submitted that section 53(1) did not come to the aid of the pursuers because they had not adopted the procedure conforming as closely as may be to the statutory form which would be multiple assignations, one for each security, all of which complied with Form A.

[15]      The second reason was that the assignations did not include the words which were required to be added by Note 2(1) in schedule 4 to the 1970 Act, namely the words “to the extent of £       being the amount now due thereunder”

[16]      According to Professor Halliday at paragraph 9-03 in the second edition of his book The Conveyancing and Feudal Reform (Scotland) Act 1970, the terms of Form A and Note 2 in schedule 4 of the 1970 Act indicated that where a standard security was for an uncertain amount (as was the case here) it could only be assigned to the extent of the sums outstanding at the date of the assignation.  This, according to Professor Halliday under reference to Burns, Conveyancing Practice, fourth edition page 576, was in accordance with existing law and practice.  Professor Gretton explained in his article that assignation in the statutory form converted an all-sums security into a fixed sum security.

[17]      In the case of Sanderson’s Trustees v Ambion Scotland Ltd 1994 SLT 645, Lord Dunpark decided that an assignation complied with the statutory requirements notwithstanding that it did not state the amount due as at the date of the assignation.  However, there were very particular circumstances which led to that conclusion, namely that the assignation was part of a tripartite arrangement involving the assignor, the debtor and the assignee in terms of which all three parties contemplated further advances by the assignee to the debtor.  At page 650L in the report of the judgment Lord Dunpark said:

“I appreciate that, if the assignee is a stranger to the debtor, the value of the security to the assignor should be stated in the assignation in order to leave the debtor free to negotiate with the assignee for further advances or, alternatively, to obtain such advances from a third party in return for the grant of a second standard security over the same subjects.  But where, as here, the debtor, original creditor and assignee of the security are all parties to an agreement of the kind which we have here, I cannot see that the inclusion in the assignation of the amount of the debt due at the date of the assignation would have any practical effect”

 

[18]      In this case, said Mr Stalker, the assignations assigned the standard securities “to the extent of all sums now due or at any time hereafter to become due” instead of “to the extent of £       being the amount due thereunder”.  The assignations did not conform to the statutory form.  Section 53(1) did not assist the pursuers because the wording did not conform “as closely as may be” to the statutory form.  In contrast to the situation in Sanderson’s Trustees there were no circumstances which necessitated an assignation in the form chosen by the parties to the assignations, as opposed to the statutory form.  The assignations, if they were competent as a method of assigning multiple securities, could easily have been made to conform to the statutory form by, for instance, including a further column in the schedule to the deed indicating the amount due in respect of each of the listed securities as at the date of the assignation.

[19]      Mr Collins submitted that the assignations in this case were in implement of mortgage sale agreements and it was clear that what was being assigned were the mortgage, the defenders’ obligations in terms of the mortgage and the security for that mortgage.  There had been no further advances to the defenders and, given that the mortgage was an “interest only” mortgage the defenders obligations at the date of each assignation remained the same as they were as at the date of granting of the standard security.  Section 14(2) of the 1970 Act allowed the assignee to obtain all of the rights which the original creditor possessed, including the obligations for the debt and the right to recover from the debtor all of the expenses.  Mr Collins maintained that it could not have been the intention to assign a fixed sum where the obligations of the debtor envisaged a situation where the balance of the mortgage would not necessarily decrease but could also increase.

[20]      Mr Collins’ position was that section 14(1) of the 1970 Act was permissive rather than compulsory but that, in any case, the assignations did conform to the statutory requirements.  The essential information was included in the assignations.  They were in the form that they were because the use of schedules was the most practical way of narrating the information required in respect of multiple securities.  The form of the assignations conformed as closely as need be to the statutory requirements.  The security granted by the defenders was thus vested in the pursuers as effectually as if the security had been granted in their favour.  Accordingly, the pursuers had title to sue.

 

Discussion and Decision on Title to Sue

[21]      Standard securities and associated deeds, such as assignations, are creatures of statute, namely the 1970 Act.  The forms of these deeds are prescribed by the Act.  They have the effects prescribed by the Act in the circumstances prescribed by the Act.  If the Act says that to have a certain result a deed requires to be in conformity with a certain form then the deed cannot have that result unless it conforms to that prescribed form or, bearing in mind the terms of section 53(1) of the 1970 Act, conforms as closely as may be to that prescribed form.  Otherwise, there would be no point in prescribing anything and parties might as well just do as they please with all the confusion and uncertainty that that would bring.  I do not think that there is anything controversial in any of the foregoing.  So do the assignations in this case conform, or conform as closely as may be, to the form prescribed by schedule 4 to the 1970 Act?

[22]      Mr Stalker’s first submission was that an assignation does not conform to the statutory form unless it is in respect of a single standard security.  I do not find that submission to be persuasive.  Quite apart from the terms of section 6(c) of the Interpretation Act 1978, there is nothing in section 14(1) of the 1970 Act which restricts “an assignation”, by which a standard security may be transferred, to a deed which deals solely with that standard security. The relevant deed merely has to be “an assignation”.  It is true that Form A in schedule 4 to the 1970 Act is cast in the form of a deed dealing with a single standard security but the purpose of Form A is to prescribe those details in respect of a standard security which must be included in the deed.  The purpose of the form, in my view, is not to make it mandatory that the deed be concerned with a single standard security.  In any event, section 53(1) of the 1970 Act allows the deed to conform as closely as may be.  The assignations in this case gave effect to transactions involving multiple standard securities.  It is abundantly clear that they were capable of being framed in such a way as to include all the mandatory details in respect of each standard security, including the standard security relevant to this case, even though they may not have done so.  The pursuers do not lack title to sue on that account.

[23]      Nonetheless, I think that the answer to the question which I pose has to be “No”.  Mr Collins may be right when he says that section 14(1) of the 1970 Act is permissive but that does not detract from the point that the security will only vest in the assignee as effectually as if it had been granted in the assignee’s favour if the assignation conforms to the prescribed form.  It is “such an assignation” that results in vesting.

[24]      Form A of the 1970 Act prescribes how a standard security for a fixed or maximum sum should be described. Note 2(1) to schedule 4 of the 1970 Act deals with the description of a standard security for an uncertain amount.  It allows description by specifying the debt or obligation in the shorthand form of “all sums due or to become due”.  It is permissive in the sense that the drafter of the deed is free to specify the debt or obligation by, for example, quoting verbatim by longhand from the standard security.  But that is the extent to which note 2(1) is permissive because the words “adding in the case of an assignation” introduce a mandatory requirement to include in an assignation the words “to the extent of £       being the amount now due thereunder”

[25]      Professor Gretton in his article, commenting on the case of Sanderson’s Trustees, said:

“There are two main questions for decision.  The first was whether the assignation was valid at all, in as much as it was disconform to the style in schedule 4 to the Conveyancing and Feudal Reform (Scotland) Act 1970.  In particular, Note 2 to the schedule provides that where an all sums security is assigned, the assignation must contain the words: “to the extent of £       being the amount now due thereunder”.  The actual assignation did not contain any such words.  Lord Dunpark held that the omission of this formula was not fatal in the admittedly unusual facts of the case.  He says that if the assignee were a “stranger” (i e the ordinary case where the assignee was not party to the original contract) then the required wording would have been necessary.  He does not however say clearly whether its omission would invalidate the assignation.”

 

[26]      Professor Gretton, himself, does not answer that question, probably because the main focus of his article was on other issues, with which I am not concerned in this case, such as whether an assignation converts a security for an uncertain amount into a fixed sum security. My answer to the question is that the omission of the words quoted did not invalidate the assignations because they remained effective for the purposes of section 14(2) by which “an” assignation, not, it is to be noted, “such an assignation”, is deemed to convey certain things to the grantee.  And, in this particular case, the assignations themselves also specifically assigned not only the standard securities but also the creditor’s whole rights and interests in and under “all and any personal bonds, credit agreements or agreements for loan (however constituted) secured by the said standard securities and granted by or entered into with [the debtors]”.  The assignation of those things remains unaffected by the omission of the words required by note 2(1).  And so the pursuers became creditors in the loan to the defenders.  But the real question is whether the omission of the words prevented each of the assignations being “such an assignation” as would vest the security for that loan in the assignee as effectually as if it had been granted in the assignee’s favour.

[27]      In the end, it comes down to whether or not, in terms of section 53(1) of the 1970 Act,  the assignations can be said to conform “as closely as may be” to Form A and note 2(1) in schedule 4 to the 1970 Act.  I take no issue with Lord Dunpark’s approach of reading the words in section 53(1) as meaning “as closely as may be appropriate to the circumstances of the case”.  It was on that basis that he concluded that, in the special circumstances of that case, the omission of the words fixing the amount of the debt as at the date of the assignation was not fatal to the effectual vesting of the standard security in the assignees.  But this case is entirely different from Sanderson’s Trustees.  I can identify no circumstances in this case which make it inappropriate or unnecessary to include the words which were omitted.  Mr Collins suggested that it could not have been the intention to assign a fixed sum where the obligations of the debtor envisaged a situation where the balance of the mortgage would not necessarily decrease but could also increase.  That point might have had force if the defenders had been party to the assignations to the effect of confirming that the standard securities would remain effective to secure future amounts due to the assignees as well as the amounts then currently due under the security.  But, as things stand, I do not see any justification for departing from the mandatory terms of an assignation on that account.

[28]      I accept Mr Stalker’s suggestion that it would have been a very easy matter to include an additional column in the schedule to each assignation to specify the amount outstanding in respect of each standard security as at the date of the assignation.  The failure to do so is not entirely fatal to the assignations but it is fatal to the original standard security becoming vested in the pursuers in this case as effectually as if it had been granted in their favour.

[29]      It follows that I must sustain the defenders’ first plea in law and hold that the pursuers do not have title to sue in respect of their craves one and two which relate to the 1970 Act.  Although neither Mr Stalker nor Mr Collins specifically addressed me in respect of the pursuers’ crave three, relating to the 1894 Act, I did not understand there to be any suggestion that the same result should not follow in respect of that crave.  Section 5 of the 1894 Act, which provides for ejection proceedings against a proprietor in possession, is available only to a creditor of lands “disponed in security”.  That is not a description that can apply to the pursuers, given that there is no effectual vesting of the standard security in them.  Even if I am wrong on this particular point, Mr Collins did not seek a decree in respect of crave three on its own and I would deem it unfair, in any event, for the defenders to be deprived of the occupation of their home when there would be no-one apart from themselves with the right to sell it.

[30]      I must say that I have come to my conclusions reluctantly because it is apparent to me that the defenders know that the pursuers are the creditors in the mortgage, even though they may not be secured creditors.  The defenders know that the debt must be repaid and they have been able to resist decree passing against them in this action by virtue of what can only be described as a technicality.  I have no doubt, however, that the pursuers are not bereft of effective remedies which they can pursue against the defenders.

 

The Question of Reasonableness

[31]      It is only right, given that I heard evidence and received the joint minute, that I should deal with this question and say what I would have done if I had found that the pursuers did have title to sue.  I did not understand it to be in dispute that if that had been the case then the pursuers would have been entitled to the remedies which they seek, provided that I considered that to be reasonable.

[32]      In terms of the joint minute it was agreed between the parties, inter alia:

1.         The last payment received by the pursuers from the defenders was £1,000 on 9 February 2016.

2.         No payments have been made by the defenders towards their mortgage account since 9 February 2016.

3.         The defenders’ mortgage term expired on 9 July 2014.

4.         On 1 December 2015 a repayment arrangement was agreed between the parties but the defenders failed to comply with it.

5.         The defenders’ intention was to redeem their mortgage account in April 2016 but failed to do so as promised.

[33]      All of the following averments in the defenders’ answer to article 5 of condescendence were established by the evidence of the first named defender:

“The defenders are respectively aged 69 and 70.  The property is their family home.  They have resided there since 1978.  It is their only home and they have no alternative accommodation available.  The loss of their home will cause the defenders hardship and stress.  The second named defender has a pacemaker fitted and the stress will affect her health.  The defenders operate a company called Pipeline Cleaning Solutions Limited.  Pipeline Cleaning Solutions limited has invented and developed a novel fluid that has the ability to suspend and carry solid particles and liquid particles, and maintain them in suspension in order to move, remove or transport those particles.  The company is currently performing well and the product has generated interest in the oil and gas industry.  A European patent has been granted and eight other patents are pending.  Licences for the North Sea and Saudi Arabia and Gulf States have been signed.  It is in discussion with several other companies over new License Agreements.  In the event that the court determines that the pursuers have title to sue, the defenders intend to realise their equity in the company through the sale of shares.  That would enable them to realise sufficient funds to repay the mortgage.”

 

[34]      I also accepted the first named defender’s evidence that the defenders had an interest in land, quite separate from the property, which was potentially valuable and that that interest in land could be realised, which failing the sale of the defenders’ company shares could be effected, within a maximum period of twelve weeks.

[35]      The first named defender stated in evidence that the defenders had received advice from solicitors that they had no obligation to pay anything to the pursuers because the standard security had not been properly assigned to the them.  On that account they had stopped making payments to the pursuers towards the mortgage account.  In my view that advice was erroneous in respect that it stated that there was no obligation to pay.  This is because, as already adverted to, the assignations were effective to make the pursuers the creditors in the mortgage account even though they failed to make them secured creditors.

[36]      In the foregoing circumstances, I would have determined that the pursuers were entitled to the orders which they seek but that it was not reasonable to grant decree in terms of the pursuers’ various craves at this point in time.  I would have considered it reasonable to grant decree after the lapse of a period of four months.  That would have given the defenders the opportunity to realise the necessary funds, from the identified sources, to repay their debt to the pursuers.

[37]      Accordingly, I would have exercised my powers in terms of section 24(5) of the 1970 Act by continuing the cause for a period of four months with an indication that I would grant decree at the continued hearing if the debt had not been paid by then.

 

Expenses

[38]      I was asked to reserve the question of expenses and I have done so.  I have fixed a hearig to determine that issue.