GE MONEY SECURED LOANS LTD AGAINST (FIRST) BRIAN BISSELL MACBRIDE AND (SECOND) LINDA RAE MACBRIDE
SHERIFFDOM OF SOUTH STRATHCLYDE, DUMFRIES & HALLOWAY AT HAMILTON
[2016] SC HAM 62
A653/09
JUDGMENT OF SHERIFF DANIEL KELLY QC
In the cause
GE MONEY SECURED LOANS LTD
Pursuers
Against
(First) BRIAN BISSELL MacBRIDE and (Second) LINDA RAE MacBRIDE
Defenders
Pursuer: Stalker, Optima Legal, Glasgow
Defender: Buchanan, Buchanan Macleod, Glasgow.
Hamilton Sheriff Court, 21 September 2016
The Issue
[1] Could enforcement of a valid decree for recovery of possession of heritable property give rise to a claim for compensation? Until the decision in Royal Bank of Scotland plc v Wilson 2011 SC (UKSC) 66 it was routine for creditors to rely upon failure to repay the instalments due on a secured loan as a default entitling them to exercise the power of sale. In that case the Supreme Court recognised that a creditor in a standard security where the debtor has defaulted on the loan must first serve a calling-up notice where it intended to exercise the power to sell the property. Where a decree had been granted prior to the Supreme Court decision and no calling-up notice had been served, or at least not relied upon, does the subsequent execution of that decree found a right to damages?
The Factual Background
[2] While the facts have yet to be established by agreement or proof, for the purposes of the Debate it emerged from the documentation provided and the submissions made that there was a degree of common ground. The second defender is the proprietor of a property known as The Croft, her Land Certificate having been registered on 15 September 2005. On the same date a Standard Security granted by the second defender in favour of Mortgages 1 Ltd was registered. On 21 January 2006 both defenders (“the borrowers”) granted a Standard Security in favour of GE Money Secured Loans Ltd (“the lenders”) over The Croft. This was recorded in the Land Registers of Scotland on 23 February 2006. The deed declared:
“The grantor hereby in security of all money and other liabilities owed to the lender…grants a Standard Security in favour of the lender over the property.”
Calculating that the borrowers were in arrears with their loan payments, the lenders stated in a Certificate that as at 21 April 2009 the arrears stood at £1,300.86.
The Proceedings So Far
[3] Relying upon failure to repay the monthly instalments of sums borrowed as a failure to comply with a requirement arising out of the security, on 22 April 2009 the lenders lodged an action for recovery of possession of The Croft and ejection. In the original action it is averred that the borrowers failed to repay the monthly instalments due and were in default. The plea-in-law founds upon the terms of standard condition 9(1)(b) of Schedule 3 of the Conveyancing and Feudal Reform (Scotland) Act 1970. Service of the calling-up notices is not relied upon in the Writ. A Certificate of Citation was lodged signed by a solicitor to the effect that on 24 April 2009 the borrowers were cited by recorded delivery letter. A copy of the certificate of posting has been produced, though the box requiring that the citations be signed for has not been ticked. The action was undefended and on 12 April 2010 decree in absence was granted. The decree granted warrant for the pursuers to enter into possession of The Croft and to sell it and granted warrant to officers of court summarily to eject the defenders and their associates from it.
[4] On 24 November 2010 the Supreme Court delivered its judgment in Royal Bank of Scotland plc v Wilson.
[5] By letter dated 2 July 2013 the lenders wrote to the borrowers to say that the decree obtained was now enforceable. On 29 July 2013 the first defender wrote back disputing that the lenders held a decree.
[6] On 10 March 2014 a charge for ejection and payment of money was served on the borrowers, removal being scheduled for 24 March 2014. On 20 March 2014 a Reponing Note was lodged claiming that the Initial Writ had not been served upon the borrowers, which was granted on 14 May 2014. On 24 June 2014 the borrowers lodged Defences and a Counterclaim and a period of adjustment followed.
[7] In 2014 the lenders lodged certified copy notices dated 30 January 2009 calling-up the standard security which had been sent to the borrowers and to the occupier of The Croft by recorded delivery on 2 February 2009. The Certificate to that effect is dated 14 April 2014. In a Minute of Amendment lodged on 26 November 2015 the borrowers disputed that notices of calling-up had been served.
[8] Taking the view that they required more than had already been lodged to show service of the calling-up notices and finding that Royal Mail Group Ltd only kept records as to delivery for one year, the lenders decided to abandon the original action. On 26 August 2014 a Minute of Abandonment seeking dismissal of the original action was allowed to be lodged. Grant of the abandonment was deferred pending payment of the borrowers’ expenses but, in the absence of them having been sought, remains outstanding. As abandonment has not proved possible until the borrowers submit their account of expenses for the lenders to pay, their account was ordained to be lodged within 28 days of the Debate. Once that has been settled decree of dismissal can be granted.
[9] After being transferred to the additional procedure, the action has progressed, sedately, to Debate.
[10] On 2 March 2015, separately from these proceedings, fresh calling-up notices were served.
The 1970 Act
[11] The effect of recording a standard security under section 9(2) of the 1970 Act is to be found in section 11, as then in force:
“11.— (1) Where a standard security is duly recorded, it shall operate to vest in the grantee a real right in security for the performance of the contract to which the security relates.
(2) Subject to the provisions of this Part of this Act, the conditions set out in Schedule 3 to this Act, either as so set out or with such variations as have been agreed by the parties in the exercise of the powers conferred by the said Part (which conditions are hereinafter in this Act referred to as ‘the standard conditions'), shall regulate every standard security.”…
For present purposes the important conditions in schedule 3 are conditions 9 and 10:
“9.— (1) 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 failure to comply with any other requirement arising out of the security;
(c) where the proprietor of the security subjects has become insolvent.
10.— (1) Where the debtor is in default, the creditor may, without prejudice to his exercising any other remedy arising from the contract to which the standard security relates, exercise, in accordance with the provisions of Part II of this Act and of any other enactment applying to standard securities, such of the remedies specified in the following sub-paragraphs of this standard condition as he may consider appropriate.
(2) He may proceed to sell the security subjects or any part thereof.
(3) He may enter into possession of the security subjects and may receive or recover feuduties, ground annuals or, as the case may be, the rents of those subjects or any part thereof.”…
Section 19(1) provides:
“19.— (1) Where a creditor in a standard security intends to require discharge of the debt thereby secured and, failing that discharge, to exercise any power conferred by the security to sell any subjects of the security or any other power which he may appropriately exercise on the default of the debtor within the meaning of standard condition 9(1)(a), he shall serve a notice calling-up the security in conformity with Form A of Schedule 6 to this Act (hereinafter in this Act referred to as a ‘calling-up notice’), in accordance with the following provisions of this section.”
When a debtor fails to comply with a calling-up notice under section 19, by virtue of section 20 the creditor can exercise any appropriate power under standard condition 10. However, in this instance the lenders proceeded on the basis that the borrowers were in default under standard condition 9(1)(b) and made an application to the court under section 24 , which provides:
’24 .— (1) Without prejudice to his proceeding by way of notice of default in respect of a default within the meaning of standard condition 9(1)(b), a creditor in a standard security, where the debtor is in default within the meaning of that standard condition or standard condition 9(1)(c), may apply to the court for 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).
(2) For the purposes of such an application as aforesaid in respect of a default within the meaning of standard condition 9(1)(b), a certificate which conforms with the requirements of Schedule 7 to this Act may be lodged in court by the creditor, and that certificate shall be prima facie evidence of the facts directed by the said Schedule to be contained therein.”
The Conduct Complained Of
[12] In the counterclaim the borrowers take issue with the basis for the decree in the light of Royal Bank of Scotland plc v Wilson, maintaining that the steps taken by the lenders in March 2014 to enforce the decree by service of a charge for payment and ejection were without regular, lawful warrant. Quite separately, they dispute the amount of the arrears said to have accrued by the date of the action and aspects of forms said to be required. By way of compensation the borrowers claim payments totalling £50,000, believing and averring that deductions of sums from their account and the decree taken had an adverse impact upon their credit ratings and that the threat of eviction caused them stress and anxiety.
The Lenders’ Challenge to the Borrowers’ Counterclaim
[13] In the first instance the lenders tackle the borrowers’ averments as to how much was actually due. The Certificate relative to section 24 of the 1970 Act lodged by the lenders specified this at £1,300.86 on 21 April 2009. In their averments the borrowers take issue with some of the fees, expenses and outlays debited. In Statement of Fact 3 of the Counterclaim they aver that the lenders had not certified a statement in terms of section 24 as at the date of lodging the initial writ and that the one relied upon does not comply with the provisions of the Act and does not accurately reflect the terms of the standard security. The lenders argue that such averments are irrelevant when the principal action seeking such payment has been abandoned (sic) because such a disagreement as to the amount due would not form the basis of an action for reparation by the borrowers. The relevancy of the averments as to the certificate are further questioned since section 24(2) merely provides that a certificate may be lodged in court by the creditor, in which case it is prima facie evidence of the facts contained therein. It need not be lodged and the evidence is rebuttable.
[14] Turning to a key point of the borrowers’ case, that based upon the effect of the decision in Royal Bank of Scotland plc v Wilson, the lenders argue that the decision of the Supreme Court had no effect upon the validity and enforceability of the decree granted on 12 April 2010. They dispute averments that they could not enforce the decree obtained as a result of that decision. Reliance was placed upon Aronson v Keeper of the Registers of Scotland 2015 SLT 122 where Lord Doherty held that a similar decree was valid unless and until it was reduced: para 29. Averments as to advice from the Council of Mortgage Lenders that decrees of this type taken for possession or eviction could no longer be enforced, with a calling-up notice requiring to be served and fresh proceedings raised, were said to be irrelevant since the views of the Council had no bearing upon a matter of law.
[15] The lenders dispute the existence of the duty founded upon in Statement of Fact 5 to take reasonable care to enforce only a decree which was in accordance with the contract between the parties and the applicable law. In that they rely upon MacRobbie v McLellan’s Trustees 1891 18 R 470 for the proposition that there could be no action of damages at the instance of a person against whom decree has been regularly obtained on the ground that the decree was wrongful, because no such decree could be taken against a defender who had knowledge of the action and took the proper steps to contest it: per Lord McLaren at p 475.
[16] The lenders distinguish between a decree irregularly obtained and one which is unfounded, arguing that at most this decree would be the latter, and therefore one where damages could not be sought for execution of it unless malice and want of probable cause were averred.
[17] Finally, the lenders respond to the borrowers’ argument that a person who applies for judicial warrant to exercise a remedy or enforce a diligence by production of a statement is answerable for the accuracy of that statement. While an ex parte statement might be made periculo petentis in certain cases, such as in applying for interim interdict or for certain diligences, they dispute that any similar doctrine applied in relation to obtaining a final decree, albeit in absence, where the defenders would have had the opportunity to defend the action had they so wished.
The Borrowers’ Response
[18] The borrowers maintain that there are four matters which should go to probation:
1. the forms required under the 1970 Act;
2. the deductions which were made from the loan account;
3. the nature of the remedy sought in applying for a warrant to proceed with repossession, which they maintain was an extraordinary one; and
4. whether execution of the diligence was wholly unjustifiable.
[19] First, the borrowers aver in Statement of Fact 1 that the lenders failed to serve the appropriate forms. Also raised is whether the notices of calling-up were served. Whether service of the Initial Writ is additionally in issue is obscure. Counsel for the borrowers referred to this as though it were live and the lenders refer to in Answer 1, averring that on 2 July 2010 the first defender queried service of the Initial Writ. The Reponing Note avers that the Initial Writ was not received but amidst the myriad of pleadings anent forms to be served and conditions of the contract this may have been overlooked. There is fleeting reference to it in the borrowers’ averments where Statement of Fact 6 does contain the phrase, “the Initial Writ was not received by the defenders”.
[20] Secondly, the borrowers say in Statement of Fact 3 that the amount in the Section 24 Certificate is inaccurate. They dispute some of the deductions to the loan account contributing to the balance of £1,300.86 on 21 April 2009. The contested entries amount to £591.77, leaving undisputed arrears of £709.09.
[21] Thirdly, the borrowers argue that the lenders were applying to the court for a special diligence or an extraordinary remedy and had to make a statement or representation to the court to induce it to give them the requisite authority and so must be answerable for the truth of the statement on the faith of which they obtained their warrant: Wolthekker v Northern Agricultural Company (1862) 1 M 211, 213. They argue that, thereby, damages might be claimed if there was a misrepresentation. They rely upon various authorities concerning the use of diligence on the dependence and of that being periculo petentis: Bell, Principles of the Law of Scotland, 10th ed, p 258; Graham Stewart, A Treatise on the Law of Diligence, p 762. They maintain that there is an inherent vice in the form or regularity of the writ or in the manner in which it was used. Seeking to equate the averments in the Initial Writ to those where warrants are obtained upon a precise statement, often ex parte, which induced the court to grant the requisite authority, the borrowers argue that the lenders were answerable for the correctness of their statements in the Writ and liable in damages if it be proved that their application was wrongful.
[22] Fourthly, it was contended that probation ought to be allowed on whether the diligence was wholly unjustifiable. The borrowers rely upon the decision in Royal Bank of Scotland plc v Wilson to indicate that the decree was obtained in a manner which was not in accordance with the law. From this they argue that it was irregularly obtained, being without legal justification, and that when the creditors chose to proceed to execute the diligence in 2014 they opened themselves to a claim for damages. They rely upon dicta in Grant v Magistrates of Airdrie where Lord President Normand held that, when diligence is an unquestionable right to which a party is absolutely entitled, he is liable in damages at common law for injury done if the execution is wholly unjustifiable though formally regular: 1939 S.C. 738 at page 758. In reviewing this and other authorities in Dramgate Ltd v Tyne Dock Engineering Ltd 2000 S.C. 43, the Inner House observed:
“In so far as it is appropriate to regard what the Lord President said as setting out ‘categories’ of case, there is ample warrant in the passages cited above from Bell's Principles and Graham Stewart on Diligence for identifying three different sets of circumstances in which notwithstanding it might be said that the creditor merely utitur jure suo, nevertheless it was unnecessary to aver malice and want of probable cause in an action of damages for wrongful use of diligence. One of these sets of circumstances concerns the use of diligence formally regular where the use is unjustifiable.”: at page 54.
The borrowers aver in Statement of Fact 5 that the Council of Mortgage Lenders, of which the lenders’ group of companies was a member, responded to a Scottish Government Consultation following the Royal Bank of Scotland plc v Wilson Judgment. They say that this noted that all existing actions had to be withdrawn and effectively started again, that around 15,000 decrees for possession or eviction had been obtained but that these were not being enforced as an arrangement had been entered into with the customer and that:
“If in the future the customer were to breach the arrangement the lender could no longer enforce the decree and a calling up notice would require to be served and fresh proceedings raised.”
Decision
[23] An action will not be dismissed as irrelevant unless, even if the pursuers prove all their averments, it must necessarily fail: Jamieson v Jamieson [1952] AC 525, 534, per Lord Normand; Mitchell v Glasgow City Council [2009] 1 AC 874, para 10 per Lord Hope. In my view the averments as to whether by 2014 the execution of the diligence had become wholly unjustifiable or wrongful would not necessarily fail. I propose to allow a proof in relation to those averments relating to failure to serve the Initial Writ (such as they are) and calling-up notices, as to whether these might amount to a flaw, error or irregularity in process in the light of the Supreme Court decision in Royal Bank of Scotland plc v Wilson and as to quantum in relation to what damage the borrowers have suffered thereby. Quoad ultra, I propose to uphold the lenders’ preliminary plea to the relevancy in relation to the remaining averments concerning the residual parts of grounds 1 to 3, which relate to the forms, certificate and amounts owed.
[24] Apart from the averments as to failure to serve the Initial Writ and calling-up notices, the first three matters upon which the borrowers seek to proceed to probation are all predicated upon the amount said to be in arrears and the schedule 7 certificate and associated forms. Since Royal Bank of Scotland plc v Wilson it has been recognised that a failure to pay the monthly instalments of sums borrowed as they fall due does not in itself amount to a ground of default which would authorise recovery of possession of the secured property. Reliance upon section 24 of the 1970 Act and any certificate under it has been acknowledged to be a fallacious basis upon which to grant decree. A calling-up notice requires to be served and founded upon if warrant to sell property and exercise any other appropriate power is sought. As it is now appreciated that section 24 does not provide a route to such a decree, it is in my view immaterial to consider whether decree granted via that route would have been granted periculo petentis. I, therefore, reject the submission that the remedy sought is a special one, being instead one available once the proper calling-up procedure had been followed. In the absence of averments of malice and want of probable cause, all of the averments relating to the forms submitted under the 1970 Act and the deductions made from the loan account are in my view irrelevant and fall to be excluded from probation.
[25] Subsequent to decree being granted and the decision in Royal Bank of Scotland plc v Wilson, the Home Owner and Debtor Protection (Scotland) Act 2010 introduced certain requirements as to what a creditor must serve if seeking to enforce due to a debtor having defaulted on a loan in residential cases. However, the certificate relied upon in the present case differs from such a requirement, being simply permitted to be lodged in court by the creditor in order to provide prima facie evidence of the facts contained therein: section 24(2) of the 1970 Act. 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: Royal Bank of Scotland plc v Wilson para 31.
[26] In a separate position is the alleged failure to serve the Initial Writ and calling-up notices and the borrowers’ fourth ground that execution of the diligence was wholly unjustifiable (though that term as such does not feature in the pleadings). The decree is valid, not having been reduced, and third parties would be obliged to treat it as such. In Aronson v Keeper of the Registers of Scotland the court had to consider the position of a third party, the Keeper of the Registers of Scotland, as to whether she should have registered without qualification a disposition arising out of a sale following upon a decree. That decree, granted on 6 April 2010 (the week before the decree here), was similarly obtained on the basis of default in repayment of the loan; no calling-up notice was served. It was held that, the decree and the disposition both being valid, the disposition ought to have been duly recorded in the register: paragraphs 29 and 37. While the decree is valid, the question remains as to whether the lenders are entitled to execute it with impunity. The general rule is that a person executing in a regular manner diligence, including a charge, for which no special warrant is necessary will not be liable to an action of damages unless malice and want of probable cause are averred: Graham Stewart p 767; Wolthekker v Northern Agricultural Company. The creditors, having obtained their extract decree, are generally entitled to charge the debtor: ibid. Maher and Cusine state in The Law and Practice of Diligence:
“If the creditor has a valid decree, he does not incur any liability for enforcing it, if the diligence itself is regular.”: at para 12.02.
[27] There is an exception if a special warrant was necessary, where an averment of malice and want of probable cause is not required: Graham Stewart p 762. This was the basis for the borrowers’ challenge to the Certificate and forms, which I have rejected. Further, where the charge is irregularly or unlawfully executed, an averment of wrongful is sufficient: Graham Stewart p 767. Of particular relevance here, in certain circumstances the charge could be wrongful if its use was unjustifiable, though the procedure was formally regular: Graham Stewart pp 769 - 770.
[28] A case has been allowed to proceed on the basis that diligence following upon a decree was wrongful, without the necessity to prove malice and want of probable cause. Where action was taken by heritable creditors against the proprietor and tenants of subjects where there was a conclusion for expenses only in the event of the defenders appearing and offering opposition, and the proprietor entered appearance in order to be kept informed of the proceedings but took no further steps, decree was taken against him for expenses without intimation. When a charge was brought on the extract decree, that was held to have been a wrongous use of diligence with the agent being liable in damages without the need to prove malice and want of probable cause: MacRobbie v McLellan’s Trustees.
[29] Later, where a sheriff officer had inadvertently served on the defender a summons directed against a third party, decree was taken in absence and then the creditor had proceeded to charge the defender under the decree in relation to the diligence, the issue in relation to the diligence was not allowed: McGregor v McLaughlin (1905) 8 F 70. Lord President Dunedin held that nothing had followed on the charge and no damage was averred to have resulted from it: ibid, p 74. Therefore, in the absence of averments of damage regarding the charge, there was nothing to go forward to proof. In this instance, unlike in McGregor v McLaughlin, there are averments of loss relating to stress and anxiety caused averred to have resulted from service of the charge, though any damages resulting may be minimal. As regards the use of diligence the Lord President held that even where the action is not obtained on ex parte application and on the strength of ex parte statement, with the diligence being employed periculo petentis, if there is some flaw in the steps of process, and if in spite of it diligence is persisted in, it may amount to a wrongous use of it and give rise to an action for damages: M’Gregor v M’Laughlin at page 74. In my view the averments sufficiently raise the question as to whether any aspect of the procedure adopted in the present case could be said to be “some flaw in the steps of process”.
[30] In MacRobbie v McLellan’s Trustees and McGregor v McLaughlin what happened between decree and diligence was also considered. Lord McLaren drew the distinction between proceedings in court and those taken out of court for the purpose of enforcing decrees: McGregor v McLaughlin at page 76. He pointed out that at the stage of execution the functions of the judge are at an end and the litigant had to be answerable for the consequences of proceedings taken under his instructions. Diligence must generally be carried out without undue delay: Maher and Cusine, The Law and Practice of Delict, para 9.93; cf Taylor v Earl of Moray (1892) 19 R 399. Here, it is averred that in the four year period between decree and enforcement the lenders were called upon by the borrowers to cease insisting on the decree and that in general other lenders were of the view that they could not properly enforce such a decree.
[31] A person is entitled to damages at common law if the execution of diligence is wholly unjustifiable though formally regular: Grant v Magistrates of Airdrie, per Lord President Normand at page 758; Dramgate Ltd v Tyne Dock Engineering Ltd at page 54. On that basis, averments to this effect ought to proceed to probation.
[32] The Record is lengthy with some complex averments and in the first instance I will appoint the case to a procedural hearing to:
(a) identify the particular averments to be excluded from probation, (or, which would be much shorter, those which would remain to go forward for enquiry),
(b) determine any issue of expenses,
(c) grant decree of abandonment of the original action, and
(d) fix a proof.