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Cite as: 2009 SLT 729, [2009] CSIH 36, [2009] ScotCS CSIH_36, 2009 GWD 19-312

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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Nimmo Smith

Lord Reed

Lord Drummond Young

[2009] CSIH NO.

OPINION OF THE COURT

delivered by LORD NIMMO SMITH

in Appeals from the Sheriffdom of Lothian and Borders at Edinburgh

in the causes

(1) THE ROYAL BANK OF SCOTLAND PLC

Pursuer and Appellant

against

(FIRST) FRANCIS JOHN WILSON and (SECOND) MRS ANNETTE WILSON

Defenders and Respondents

and

(2) THE ROYAL BANK OF SCOTLAND PLC

Pursuer and Appellant

against

(FIRST) JOHN PATRICK McCORMACK WILSON and (SECOND) MRS NORMA WILSON

Defenders and Respondents

_______

Act: McIlvride; Anderson Fyfe

Alt: Summers; Jardines

5 May 2009

Introduction

[1] These are appeals by the pursuer ("the Bank") from decisions of the sheriff at Edinburgh following proof before answer in two actions by the Bank as holder of standard securities over houses at 98 Dalum Grove and 100 Dalum Grove, Loanhead. In each action the Bank seeks (1) warrant in terms of section 24(1) of the Conveyancing and Feudal Reform (Scotland) Act 1970 ("the 1970 Act") to enter into possession of the security subjects and (2) ejection of the defenders with a view to selling the security subjects.

[2] In the first action (the Francis Wilson action), the Bank sues Francis John Wilson and his wife, Mrs Annette Wilson. The action relates to their house at 100 Dalum Grove. In the second action (the John Wilson action), the Bank sues John Patrick McCormack Wilson and his wife Mrs Norma Wilson. The action relates to their house at 98 Dalum Grove. Francis Wilson and John Wilson are brothers.

[3] The standard security in the Francis Wilson action was granted by Francis Wilson and his wife on 12 July 1991 in consideration of a loan for the purchase of their house. The standard security in the John Wilson action was granted by John Wilson and his wife on 28 November 1991 in consideration of a loan for the construction of a conservatory. The standard securities were granted in security for all sums of money due and that might become due to the Bank by the grantors thereof. They were recorded in the Division of the General Register of Sasines for the County of Midlothian respectively on 3 December 1991 and 4 December 1991.

[4] These actions have already had a lengthy history. They were raised as long ago as 1998 and have been the subject of previous appeals to this court, whose decision is reported at 2004 SC 153. In the course of subsequent procedure, a proof before answer took place before the sheriff. Thereafter, by interlocutor dated 2 May 2007 in each action, the sheriff inter alia assoilzied the defenders in that action from the craves of the initial writ. The sheriff found in fact and in law that the Bank had failed to prove that the defenders were in default of their obligations under the standard security in question, in terms of standard condition 9(1)(b) of Schedule 3 to the 1970 Act. He also held that the Bank was not entitled to the remedy of ejection as craved. By interlocutor dated 29 May 2007 in each action the sheriff found the Bank liable to the defenders in the expenses of that action, so far as not already dealt with,

[5] The Bank has now appealed to this court against both interlocutors of the Sheriff. Since the same issues arise in each of the two actions, mutatis mutandis, we shall discuss the issues together and without distinction between the two actions; and we shall, for convenience, refer to all the defenders collectively as "the Wilsons".

The statutory framework

The 1970 Act

[6] By Part II of the 1970 Act standard securities were created as a new form of heritable security. It should be noted in passing that the 1970 Act, including Part II thereof, has been amended by a number of later statutes, most notably the Abolition of Feudal Tenure etc. (Scotland) Act 2000. Given the dates of the standard securities in the present case, however, the Act applied to them in its unamended form; and in any event the amendments did not affect the provisions set out below.

[7] Since the coming into force of the Act, by section 9(3) thereof a grant of any right over an interest in land for the purpose of securing any debt by way of a heritable security has only been capable of being effected at law if it is embodied in a standard security. By section 9(8)(c) the word "debt" is defined as meaning inter alia any obligation due, or which would or might become due, to repay or pay money, and "creditor" and "debtor", in relation to a standard security, are to be construed accordingly. By section 11(1), where a standard security is duly recorded, it operates to vest the interest over which it is granted in the grantee as a security for the performance of the contract to which the security relates. The remainder of section 11 contains provisions relating to the standard conditions which regulate every standard security, either as set out in Schedule 3 or with such variations as have been agreed by the parties. Standard condition 9(1) provides:

"The debtor shall be held to be in default in any of the following circumstances, that is to say -

(a) where a calling-up notice in respect of the security has been served and has not been complied with;

(b) where there has been a failure to comply with any other requirement arising out of the security;

[7] Section 19(1) provides that 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 ("a calling-up notice"). Further provision about calling-up notices is made by the remainder of section 19, including the provision by sub-section (2) that a calling-up notice shall be served on the person last infeft in the security subjects and appearing on the record as the proprietor.

[8] Section 20 provides by sub-section (1):

"Where the debtor in a standard security is in default within the meaning of standard condition 9(1)(a), the creditor may exercise such of his rights under the security as he may consider appropriate, and any such right shall be in addition to and not in derogation from any other remedy arising from the contract to which the security relates or from any right conferred by any enactment or by any rule of law on the creditor in a heritable security."

By sub-sections (2) and (3) the creditor has the right to sell or to let the security subjects.

[9] By section 21:

"(1) Where the debtor in a standard security is in default within the meaning of standard condition 9(1)(b), and the default is remediable, the creditor may, without prejudice to any other powers he may have by virtue of this Act or otherwise, proceed in accordance with the provisions of this section to call on the debtor and on the proprietor, where he is not the debtor, to purge the default.

(2) For the aforesaid purpose the creditor may serve on the debtor and, as the case may be, on the proprietor a notice in conformity with Form B of Schedule 6 to this Act (hereinafter in this Act referred to as a "notice of default") which shall be served in the like manner and with the like requirements as to proof of service as a calling-up notice."

[10] Section 23(1) provides inter alia that where a person does not object to a notice of default, it shall be his duty to comply with any requirement, due to be performed or fulfilled by him, contained in the notice. By section 23(2), where a person fails to comply as aforesaid, the creditor may proceed to exercise such of his rights on default under standard condition 10(2), (6) and (7) as he may consider appropriate.

[11] Section 24 provides:

"(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."

[12] Section 27(1) provides that, where the creditor in a standard security has exercised his power of sale and has received money arising from the sale, the money is to be held by him in trust to be applied by him in accordance with a specified order of priority. Of relevance for present purposes are payment of all expenses properly incurred by the creditor in connection with the sale, and payment of the whole amount due under the standard security.

[13] Section 32 provides that the provisions of any enactment relating to a bond and disposition or assignation in security are to apply to a standard security, except in so far as such provisions are inconsistent with the provisions of Part II of the 1970 Act, with the exception of the enactments specified in Schedule 8 (which is not otherwise relevant for present purposes).

[14] By Schedule 7 the contents of a certificate stating a default for the purposes of section 22 or 24 are to be statements of the name and address of the creditor, specification of the standard security in respect of which the default is alleged to have occurred by reference to the original creditor and debtor therein and to the particulars of its registration, and "the nature of the default with full details thereof". The certificate is to be signed by the creditor or his solicitor. A certificate which does not comply with these requirements is not to be received in evidence for the purposes of section 22 or 24.

[15] In Schedule 6, Form A (the calling-up notice) is in the following terms:

"To A.B. (address)

TAKE NOTICE that C.D. (designation) requires payment of the principal sum of £ ... with interest thereon at the rate of ... per centum per annum from the ... day of ... (adding if necessary, subject to such adjustment of the principal sum and the amount of interest as may subsequently be determined) secured by a standard security by you (or by E.F.) in favour of the said C.D. (or of G.H. to which the said C.D. has now right) recorded in the Register for ... on ... ; And that failing full payment of the said sum and interest thereon (adding if necessary, subject to any adjustment as aforesaid), and expenses within two months after the date of service of this demand, the subjects of the security may be sold.

Dated this ... day of ...

(To be signed by the creditor, or by his agent, who will add his designation and the words Agent of the said C.D.)

In the case of a standard security for a non-monetary obligation this Form shall be adapted accordingly."

Form B (the notice of default) is in the following terms:

"To A.B. (address)

TAKE NOTICE that C.D. (designation), the creditor in a standard security by you (or by E.F.) in favour of the said C.D. (or of G.H. to which the said C.D. has now right) recorded in the Register for ... on ... , requires fulfilment of the obligation(s) specified in the Schedule hereto in respect of which there is default; And that failing such fulfilment within one month after the date of service of this notice, the powers competent to the said C.D. on default may be exercised.

Dated this ... day of ...

(To be signed by the creditor, or by his agent, who will add his designation and the words Agent of the said C.D.)

Schedule of Obligation(s) in respect of which there is default.

To (specify in detail the obligation(s) in respect of which there is default)."

The Titles to Land Consolidation (Scotland) Act 1868

[16] The Titles to Land Consolidation (Scotland) Act 1868, section 119 (now repealed by the Abolition of Feudal Tenure etc. (Scotland) Act 2000, Schedule 13, with effect from 28 November 2004), contained provisions relating to the import of clauses occurring in any bond and disposition in security in the form provided by Schedule (FF.) No. 1 to the Act. The section provided inter alia:

"[T]he clause of assignation of rents shall be held to import an assignation to the creditor and his representatives in mobilibus, or his heirs, as the case may be, and to his assignees, to the rents to become due or payable from and after the date from which interest on the sum in the security commences to run ... including therein a power to the creditor and his foresaids to insure all buildings against loss by fire, and on default in payment to enter into possession of the lands disponed in security, and uplift the rents thereof, or to uplift the rents thereof if the lands are not disponed in security, and to make all necessary repairs on the buildings, subject to accounting to the debtor for any balance of rents actually recovered beyond what is necessary for payment to such creditor and his foresaids of the sums, principal, interest, and penalty, due to him or them under such security, and of all expenses incurred by him or them in reference to such possession, including the expenses of management, insurance, and repairs; ... the clauses reserving right of redemption, and obliging the grantor to pay the expenses of assigning or discharging the security, and, on default in payment, granting power of sale, shall have the same import, and shall be in all respects as valid, effectual, and operative, as if it had been in such bond and disposition in security ... further provided and declared that if the grantor should fail to make payment of the sums that should be due by the personal obligation contained in the said bond and disposition in security within three months after a demand of payment intimated to the grantor ... and which demand for payment may be in or as nearly as may be in the form of No. 2 of schedule (FF.) hereto annexed, and a copy thereof certified by such notary public in the form of No. 3 of Schedule (FF.) hereto annexed... shall be sufficient evidence of such demand, then and in that case it should be lawful to and in the power of the grantee, immediately after the expiration of the said three months, and without any other intimation or process at law, to sell and dispose, in whole or in lots, of the said lands and others...."

Form No. 2 in Schedule (FF.) provided inter alia:

"I, A.B., [design him] procurator for C.D. [design creditor in right of the security], in whose favour the bond and disposition in security aftermentioned was granted, ....do hereby give notice to you, E.F. [design debtor under the security], that payment is now required of the sum of £ , being the principal sum due under the bond and disposition in security, dated and recorded , granted by you, E.F. ... in favour of the said C.D. ... and of the sum of £ , being the interest due at present on the said principal sum, with such further sum of interest as shall accrue on the said principal sum to be paid. And I further give you notice, that if at the expiry of the period of three months from the date hereof the sums, principal and interest, and liquidate penalty incurred and to be incurred, of which payment is now required, shall not be paid in terms of the said bond and disposition and security, then the said C.D. ... may proceed to sell the lands and others [or subjects] thereby conveyed in the manner provided by the Titles to Land Consolidation (Scotland) Act 1868, and with all powers and privileges conferred or competent to creditors under bonds and dispositions in security by that Act ..."

The Heritable Securities (Scotland) Act 1894

[17] Section 5 of the Heritable Securities (Scotland) Act 1894 provides:

"Where a creditor desires to enter into possession of the lands disponed in security, and the proprietor thereof is in personal occupation of the same, or any part thereof, such proprietor shall be deemed to be an occupant without a title, and the creditor may take proceedings to eject him in all respects in the same way as if he were such occupant: Provided that this section shall not apply in any case unless such proprietor has made default in the punctual payment of the interest due under the security, or in due payment of the principal after formal requisition."

The Conveyancing (Scotland) Act 1924

[18] The following provisions of the Conveyancing (Scotland) Act 1924 were repealed by the Abolition of Feudal Tenure etc (Scotland) Act 2000, Schedule 13, with effect from 28 November 2004. Section 33 provided inter alia:

"Without prejudice to his rights and remedies under the personal obligation a creditor in a bond and disposition in security, or any part thereof, ... may serve a notice calling up the same in or as nearly as may be in the terms of Form No. 1 of Schedule M to this Act. Such notice shall be given to the person infeft in the land disponed in security and appearing on the record as the proprietor ..."

Schedule M, Form number 1, provided:

"To A.B. (insert name and last known address of person to whom notice is given).

Take notice that C.D. (name creditor) requires payment of the principal sum of (insert sum) with interest thereon at the rate of per centum per annum from the day of due under a Bond and Disposition in Security by you ... in favour of the said C.D. ... dated (insert date) and recorded in (specify Register of Sasines, and date of recording): And that failing full payment of the said principal sum, interest and expenses within three months after this demand the lands and others (or subjects) held in security may be sold.

Dated this day of (date of giving notice personally or of posting same).

(To be signed by the creditor, or by his Agent, who will add his designation and the words Agent of the said C.D.)"

Section 34 provided inter alia:

"Such notice shall be deemed to be formal requisition for all purposes, including the purposes of the Heritable Securities (Scotland) Act, 1894; ..."

The Sheriff's Findings in Fact

[19] The sheriff's findings in fact, and findings in fact and in law, in the Francis Wilson action, so far as relevant for present purposes, were as follows:

"4. The Pursuers are creditors in terms of a Standard Security No. 5/5/8 of Process for 'all sums due and to become due' by the Defenders, recorded in the General Register of Sasines applicable to the County of Midlothian on 3 December 1991. The Defenders granted said Standard Security on 12 July 1991 over the subjects aforementioned [100 Dalum Grove, Loanhead].

5. As at 8 October 1992 the First Defender was a partner in a firm F J Wilson Associates, along with his son, Francis John Wilson, Junior and his brother, John Patrick Wilson. On that date each of them signed a Partnership Letter in favour of the Pursuers requesting them to 'open/continue an account' in the Pursuers' books in the name of said firm. In said Partnership Letter the First Defender and his partners inter alia undertook certain obligations. A copy of said Letter forms No. 5/1/3 of Process.

6. As at 15 October 1993 the First Defender was a partner in a firm Wilson Brothers, along with his brother, John Patrick Wilson. On that date each of them signed a similar Partnership Letter in favour of the Pursuers. A copy of said Letter forms No. 5/1/4 of Process.

7. On 20 June 1995 Alistair W Henderson of the Pursuers' Insolvency Unit wrote to the First Defender. A certified copy of this letter forms No. 5/5/15 of Process. The First Defender received and read the letter after it was sent to him. At the time he did not understand it to mean that the Pursuers would seek to repossess his home or eject his family, but they were seeking to recover sums of money due to them. The Second Defender saw the letter for the first time in early 2007. She thought it meant that the Pursuers were seeking to recover money from her husband. In it the Pursuers inter alia called on the First Defender to effect repayment of the whole sums due to the Bank. In an undernote to the letter it was stated that these sums consisted of £22,250.61 and £26,211.88, both exclusive of interest and charges, being the sums overdrawn on the Business Current Accounts of Wilson Brothers and F J Wilson Associates respectively; and £854.07 exclusive of accrued interest, being a Business Term Loan in the name of F J Wilson Associates.

8. No 5/2/5 of Process is a Certificate of Indebtedness prepared by the Pursuers and dated 30 July 1999. It purports to certify that as at 31 March 1998 the First Defender and John Patrick Wilson was due to the Pursuers in the sum of £42,094.17 in respect of a Firm 'F J Associates' (sic) and £45,997.62 in respect of the firm Wilson Brothers. The entity described as 'F J Associates' was in fact the firm 'F J Wilson Associates' in which the First Defender was a partner. Although each of said sums is said to comprise stated elements for principal and interest, there is no specification of which interest rates have been applied to which amount of principal over which periods.

9. In this action a warrant for citation was granted on 21 April 1998. Service of the Initial Writ was effected on both Defenders on 27 April 1998. This was the first occasion on which the Second Defender became aware that the Pursuers were seeking the repossession of her home and ejection of herself and her family. No. 5/4/7 of Process is a Certificate of Default in terms of Schedule 7 of the Conveyancing and Feudal Reform (Scotland) Act 1970 ("the 1970 Act"). This purports to certify, as at the date of the raising of these proceedings, the extent of the alleged default by the Defenders in respect of their obligations in terms of Standard Condition 9(1)(b) of Schedule 3 to the 1970 Act. The default was stated as non-payment of the total sum of £42,094.17 in respect of the firm of F J Wilson Associates and £45,997.62 in respect of the firm of Wilson Brothers.

10. No. 5/5/10 of Process is a further Certificate of Indebtedness prepared by the Pursuers. It is dated 1 June 1999. It purports to certify that as at 1 June 1999 the First Defender was due to the Pursuers in the sum of £55,829.48 in respect of the Firm of F J Wilson Associates; £62,759.54 in respect of the firm of Wilson Brothers; and (along with the Second Defender) £18,501.75 in respect of a House Purchase Loan Account. In respect of the interest element of the first two of these three sums, the certificate states that the interest rate applicable is 'fixed 25% Default' but there is no indication of the sums to which such a rate has been applied, nor the period of any such application.

11. No. 6/2/3 of Process comprises copy Certified Statements of Account with the Pursuers in the name of the firm of Wilson Brothers from 15 October 1993 to 30 June 1999. No. 5/5/11 of Process comprise certified copies thereof. As at 20 June 1995 the account was overdrawn in the sum of £22,258.61. The Pursuers thereafter regarded said sum as a 'Bad and Doubtful' debt.

12. No. 6/3/2 of Process comprises copy Certified Statements of Account with the Pursuers in the name of the firm F J Wilson Associates from 3 January 1992 to 28 December 1995. No. 5/5/12 of Process comprise certified copies thereof. As at 20 June 1995 the account was overdrawn in the sum of £26,211.88. The Pursuers thereafter regarded said sum as a 'Bad and Doubtful' debt.

13. No 5/5/9 of Process is a Certificate of Default in terms of Schedule 7 of the 1970 Act dated 3 February 2006. It purports to certify that the First Defender is in default of his obligations under the said Standard Security and states inter alia that as at 1 February 2006 the default consists of the failure of the First Defender to repay on demand to the Pursuers the sum of £141,247.52 in respect of Wilson Brothers and £99,172.81 in respect of F J Wilson Associates, both said sums inclusive of accrued interest.

FINDS IN FACT AND IN LAW

1. The Pursuers have failed to prove that the Defenders are in default of their obligations under the Standard Security in terms of Standard Condition 9(1)(b) of Schedule 3 to the 1970 Act.

2. The Pursuers are not entitled to either of the warrants craved."

[20] Those in the John Wilson action were as follows:

"4. The Pursuers are creditors in terms of a Standard Security No. 5/5/8 of Process for 'all sums due and to become due' by the Defenders, recorded in the General Register of Sasines applicable to the County of Midlothian on 4 December 1991. The Defenders granted said Standard Security on 12 July 1991 over the subjects aforementioned [98 Dalum Grove, Loanhead].

5. As at 8 October 1992 the First Defender was a partner in a firm F J Wilson Associates, along with his brother Francis John Wilson and his nephew Francis John Wilson, Junior. On that date each of them signed a Partnership Letter in favour of the Pursuers requesting them to 'open/continue an account' in the Pursuers' books in the name of said firm. In said Partnership Letter the First Defender and his partners inter alia undertook certain obligations. A copy of said Letter forms No. 5/1/3 of Process.

6. As at 15 October 1993 the First Defender was a partner in a firm Wilson Brothers, along with his brother, Francis John Wilson. On that date each of them signed a similar Partnership Letter in favour of the Pursuers. A copy of said Letter forms No. 5/1/4 of Process.

8. No 5/2/5 of Process is a Certificate of Indebtedness prepared by the Pursuers and dated 30 July 1999. It purports to certify that as at 31 March 1998 the First Defender and Francis John Wilson was due to the Pursuers in the sum of £42,094.17 in respect of a Firm 'F J Associates' (sic) and £45,997.62 in respect of the firm Wilson Brothers. The entity described as 'F J Associates' was in fact the firm 'F J Wilson Associates' in which the First Defender was a partner. Although each of said sums is said to comprise stated elements for principal and interest, there is no specification of which interest rates have been applied to which amount of principal over which periods.

10. No. 5/5/10 of Process is a further Certificate of Indebtedness prepared by the Pursuers. It is dated 1 June 1999. It purports to certify that as at 1 June 1999 the First Defender was due to the Pursuers in the sum of £55,829.48 in respect of the Firm of F J Wilson Associates and £62,759.54 in respect of the firm of Wilson Brothers. In respect of the interest element of these two sums, the certificate states that the interest rate applicable is 'fixed 25% Default' but there is no indication of the sums to which such a rate has been applied, nor the period of any such application.

FINDS IN FACT AND IN LAW

1. The Pursuers have failed to prove that the Defenders are in default of their obligations under the Standard Security in terms of Standard Condition 9(1)(b) of Schedule 3 to the 1970 Act.

2. The Pursuers are not entitled to either of the warrants craved."

The documents

[21] Of the documents before the sheriff, the following passages were referred to in the course of the hearing before us.

The standard securities

[22] The two standard securities, dated respectively 12 July and 28 November 1991 and recorded as aforesaid, were, so far as material, in identical terms. In the first, Francis Wilson and his wife Mrs Annette Wilson, and in the second John Wilson and his wife Mrs Norma Wilson, were together referred to as "the Obligant". They undertook to pay to the Bank "on demand all sums of principal, interest and charges which are now and which may at any time hereafter become due to the Bank by the Obligant whether solely or jointly with any other person, corporation, firm or other body and whether as principal or surety". There then followed various declarations, of which the following are relevant:

"(1) the interest hereinbefore referred to shall be at the rate(s) agreed between the Bank and the Obligant or (failing such agreement) determined by the Bank and shall be payable at such dates as may be so agreed or determined by the Bank;

(2) in the event of the foregoing personal obligation being granted by more than one person the expression 'the Obligant' means all such persons together and/or any one or more of them; and in all cases the obligations hereby undertaken by the Obligant shall bind all person(s) included in the expression 'the Obligant' and his, her or their executors and representatives whomsoever all jointly and severally without the necessity of discussing them in their order; ...

(5) the sums due by the Obligant shall be conclusively ascertained by a statement under the hand of a Director, General Manager, Assistant General Manager, Secretary or Chief Accountant of the Bank;...."

For the above sums the grantors granted a standard security in favour of the Bank over the security subjects as described therein. It was provided that the standard conditions specified in Schedule 3 to the 1970 Act, and any lawful variation thereof operative for the time being, should apply, subject to specific variations, none of which is relevant for present purposes.

The partnership letters

[23] On 8 October 1992 Francis Wilson, John Wilson and Francis John Wilson, Junior, being the partners of the firm of F J Wilson Associates ("the firm"), requested the bank to open or continue an account in its books in the firm's name and authorised it to honour all cheques, bills, promissory notes or other orders for payment drawn, accepted or made when signed by any of them on behalf of the firm and to debit such cheques, bills, promissory notes and orders to the account or accounts of the firm with the bank whether such account or accounts were in credit or overdrawn or might become overdrawn in consequence of any such debits. The letter provided:

"[W]e will be jointly and severally responsible for the repayment of any indebtedness or liability incurred by the Firm and interest and charges thereon."

[24] On 15 October 1993 John Wilson and Francis Wilson, as the partners of the firm of Wilson Brothers, signed a letter which, so far as material, was in identical terms to the earlier one.

The business current accounts

[25] The business current account in the name of F J Wilson Associates, certified by a Manager of the Bank on 1 February 2006, shows that on 24 June 1994 the debit balance on the account was £26,211.88. The balance remained the same on 28 December 1995, on which date the account was closed.

[26] The business current account in the name of the firm of Wilson Brothers, again certified by a Manager of the Bank on 1 February 2006, shows that on 24 October 1995 there was a debit balance of £22,258.61 and that the account was closed on 13 May 1998.

[27] By the time they were closed, both accounts had been marked by the Bank with the words "retain bad and doubtful".

The demand letters

[28] On 20 June 1995 Alistair W Henderson, Assistant Recoveries Manager Insolvency Unit of the Bank, wrote to each of Francis Wilson and John Wilson in identical terms:

"I regret to learn that your indebtedness to the Bank as undernoted at our above [Penicuik] branch is not being repaid in accordance with arrangements and I have therefore to advise that unless within ten days from the date of this letter you effect repayment of the whole sums due to the Bank or, alternatively, make a substantial payment to account within that period coupled with acceptable proposals to take care of the remaining indebtedness I shall have no alternative but to institute proceedings against you for recovery.

Such proceedings will involve expense for which you will be liable and it is therefore in your own interest to give this matter your immediate attention."

The sums in question were stated to be:

(1) Business current account in the name of the firm of Wilson Brothers for which Francis Wilson and John Wilson remained jointly and severally liable, then overdrawn to the extent of £22,250.61 exclusive of accrued interest and charges;

(2) Business current account in the name of the firm of F J Wilson Associates for which Francis Wilson, John Wilson and Francis Wilson, Junior, remained jointly and severally liable, then overdrawn to the extent of £26,211.88 exclusive of accrued interest and charges;

(3) Indebtedness on a business term loan in the name of the firm of F J Wilson Associates for which the same three debtors all remained jointly and severally liable, then amounting to £854.07 exclusive of accrued interest.

(There is a difference of £8 between the sum at (2) and the balance shown in the statement of account; this is of no moment.)

The certificates of indebtedness

[29] By certificates dated 1 June 1999, signed by a secretary of the Bank, the Bank certified that as at 1 June 1999 there were due to them by Francis Wilson and John Wilson respectively certain specified sums.

[30] In the case of Francis Wilson three accounts were referred to: (1) in the account in name of the firm F J Wilson Associates the total sum due was £55,829.48, of which the principal outstanding was £53,225.69 and interest outstanding was £2,603.79; (2) in the account in name of the firm of Wilson Brothers the total sum due was £62,759.54, of which the principal outstanding was £59,839.44 and interest outstanding was £2,920.10; and (3) in the account in the name of Francis John Wilson and Mrs Annette Wilson house purchase loan account the total sum due was £18,501.75, of which principal was £18,227.26 and interest outstanding was £274.49. In relation to the first two accounts the interest rate applicable was said to be "Fixed 25% - Default", and in relation to the third account the interest rate applicable was stated to be "Mortgage".

[31] In the case of John Wilson, the certificate, which referred only to the accounts in name of the firm of F J Wilson Associates and the firm of Wilson Brothers, was otherwise in identical terms.

[32] By certificate dated 30 July 1999, signed by a secretary of the Bank, the Bank certified that as at 31 March 1998 there were due to them by Francis Wilson and John Wilson jointly and severally certain specified sums. (1) In the account in name of the firm F J Wilson Associates the total sum due was £42,094.17, of which the principal outstanding was £41,824.06 and interest outstanding was £270.11. (2) In the account in name of the firm of Wilson Brothers the total sum due was £45,997.62, of which the principal outstanding was £45,702.46 and interest outstanding was £295.16. The first account was erroneously named "Firm of F J Associates", rather than "F J Wilson Associates"; this error is of no moment.

The certificates of default

[33] In each action, two certificates of default were lodged. The earlier certificates, which were not dated, were signed by the Bank's solicitors and were, so far as material for present purposes, in identical terms. They bore to be issued in terms of Schedule 7 to the 1970 Act. After referring to the standard security in question each certificate continued:

"[T]he Defenders are in default of the said Standard Security as follows:

As at the raising of the Court proceedings at Edinburgh Sheriff Court by the Pursuers against the Debtors....the Debtors had defaulted in respect of their obligations for payment of the Firm of Wilson Brothers account....in the principal sum of £45,702.46 with £295.16 accrued interest as at 31 March 1998. The Debtors had also defaulted in terms of their obligations in respect of payment of the Firm of F J Wilson Associates account.....in the principal sum of £41, 824.06 and accrued interest of £270.11 as at 31 March 1998.

Accordingly the Debtors are in default in terms of the Standard Condition 9 (1) (b) of Schedule 3 to the Conveyancing & Feudal Reform (Scotland) Act 1970."

[34] The later certificates of default were both dated 3 February 2006, signed by the Bank's solicitor and, so far as material for present purposes, in identical terms. In the case of Francis Wilson, after referring to the relationship of creditor and debtor in the standard security in question, the signatory certified:

"3. That the said Francis John Wilson is in default in terms of the aforementioned Standard Security.

4.That the default consists in the failure of Francis John Wilson to repay on demand to the creditor (1) business current account in the name of the firm of Wilson Brothers amounting to £141,247.52 including accrued interest of £1,865.85 as at 1 February 2006; (2) business current account in the name of the firm of F J Wilson Associates amounting to £99,172.81 including accrued interest of £1,310.05 as at 1 February 2006."

Apart from the names, the certificate in the case of John Wilson was in identical terms.

The oral evidence

[35] At the proof, the witnesses who gave evidence were all four Wilsons and Mr Malcolm Platt, who was called by the defenders as an expert witness on banking matters. His evidence was that the significantly higher figure in the certificates of default than those given in the statements led him to the conclusion that interest had been applied to the principal debt, although he could not tell at what rate or at what intervals it had accrued. During the course of his evidence the Sheriff repelled an objection on behalf of the Bank that there were no averments on record which would justify an exploration of the contractual arrangements or the terms of the contracts entered into between the Bank and the Wilsons. Thereafter the witness said that it might well be that a penal rate of interest had been applied, but he could not tell what that rate was. The amount brought out in the statutory certificates dated December 2006 led him to the conclusion that interest had been added at a flat rate of 25% per annum. He had seen no contractual provision entitling the Bank to charge interest at this rate.

The appeal to this court

[36] The Bank has now appealed to this court against the sheriff's interlocutors. As is apparent from the terms of his findings, as set out above, there are two main issues, which we shall refer to respectively as "the default issue" and "the ejection issue". We find it convenient to discuss the ejection issue first. It may be put in this way: is the remedy of ejection competent to a creditor in a standard security and, if so, what steps is he required to take in order to obtain this remedy? The default issue may be put in this way: has the Bank taken the required steps in order to obtain the remedy of ejection against the Wilsons?

[37] It is to be noted that in their defences to each action the Wilsons have averred a number of matters, some of which were not in the event pursued at the proof, and others of which the sheriff decided against them. There is no cross-appeal against the sheriff's decision on any matter which he decided against the Wilsons. We do not therefore require to discuss their defences except to the extent that it is necessary to do so in order to dispose of the issues raised in the appeal.

The ejection issue

[38] A creditor in a standard security whose debtor has not performed his obligations has a choice of options under the 1970 Act. He may serve either a calling-up notice or a notice of default. A succinct summary of the position is found in Bank of Scotland v Millward 1999 S.L.T. 901. Lord MacLean, in delivering the opinion of the court, said at page 903:

"It seems obvious to us that conveyancing practitioners use notices of default even in situations where they could use calling up notices. In short, they consider that in such situations they have a choice of action. ... In our opinion the law is correctly stated in Halliday's Conveyancing Law and Practice (2^nd ed.), that the creditor may serve a calling-up notice where a creditor in a standard security intends to require repayment of the principal sum and interest, but he is not required to do so. He may, alternatively, serve a notice of default." (Emphasis in original)

Of the options available to it in the present case, the Bank has chosen to proceed under section 24. For that purpose it must proceed in each action on the basis of a certificate which conforms with the requirements of Schedule 7 to the Act. If it does so, the certificate is prima facie evidence of the facts directed by that Schedule to be contained therein. What then have to be considered are the statutory consequences which follow.

[39] While the matter has not previously been considered in this court, there are two decisions in the Sheriff Court which are of relevance. In Cedar Holdings Ltd v Iyyaz 1989 S.L.T. (Sh Ct) 71 Sheriff Principal Caplan (as he then was) said at page 73:

"The next question I have to decide is whether the crave for ejection can or indeed should be incorporated in the summary application. ... Under s.24(1) the creditor can apply to the court for warrant to exercise any 'remedy' which he would be entitled to exercise were there to be a default under standard condition 9(1)(a). Where a 9(1)(a) default occurs then in terms of standard condition 10(1) the creditor may exercise any remedy arising from any other enactment relating to standard securities. Section 5 of the Heritable Securities (Scotland) Act 1894 provides that where a creditor desires to enter into possession of the lands disponed in security, and the proprietor thereof is in person or occupation of the same, such proprietor shall be deemed to be an occupant without title and the creditor may take proceedings to eject him in all respects in the same way as if he were such an occupant. There is a proviso that the proprietor must have been in default in the punctual payment of interest or the principal after formal requisition. Section 32 of the 1970 Act provides that any enactment relating to a bond and disposition or assignation in security shall apply to a standard security except insofar as such provisions are inconsistent with the provisions of the relevant Part of the Act. Thus s.5 of the 1894 Act applies to standard securities but has to be read subject to the provisions of the 1970 Act. It is only by virtue of s.24(1) that standard condition 10(1) so far as it relates to remedies conferred by other enactments applies to a 9(1)(b) default. If the pursuers had been proceeding in respect of a default in terms of standard condition 9(1)(a) then in this case to take proceedings for ejection would have been a remedy open to them under the 1894 Act. If, as here, they want to proceed to exercise the remedy in respect of a default under standard condition (9)(1)(b) then in terms of s.24(1) they can apply to the court to exercise the remedies which they would have had if the default had been under 9(1)(a), but it seems that they must so apply to make their remedy operative. ...

By entering into a standard security the debtor directly affords his ejection as a remedy and the remedy cannot be operated without a court application."

[40] A contrary decision is to be found in Clydesdale Bank Plc v Findlay & Co 1989 S.L.T. (Sh Ct) 77, a decision of Sheriff Principal O'Brien. Under reference to the decision in Cedar Holdings Limited v Iyyaz, he said, at page 80:

"As I read it, Sheriff Principal Caplan's judgment was expressed in the context of a default in standard condition 9(1)(b), whereas I am concerned with a 9(1)(a) default. I am inclined to agree with Sheriff Principal Caplan where he observes that a warrant to enter into possession should be pursued by way of a summary cause. Regretfully, however, I have to part company with him where he applies the same to the remedy of ejection. I do not think it is correct to say that ejection is one of the remedies for which s.24(1) makes provision. I have come to the view that the omission of any reference to ejection or eviction in the remedies detailed in standard condition 10 and elsewhere in the 1970 Act was deliberate because it was intended to retain the former rights of appeal in an ejection."

[41] The latter decision appears to us to be inconsistent with the views expressed by this court in Bank of Scotland v Millward. We prefer the reasoning of Sheriff Principal Caplan. The 1970 Act equiparates the position of a creditor whose debtor is in default under standard condition 9(1)(b) with the position of a creditor who has served a calling-up notice which has not been complied with, resulting in a default under standard condition 9(1)(a). Where the court holds it to be established that there is default within the meaning of standard condition 9(1)(b), the creditor 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). A creditor who serves a calling-up notice is making a formal requisition for the purposes of the 1894 Act. This places the creditor whose debtor is in default in the same position. Such a creditor is entitled to exercise all the remedies which would be open to a creditor who has served a formal requisition in terms of section 5 of the 1894 Act. Section 5 of the 1894 Act expressly confers the right to take proceedings for ejection. Just as the creditor cannot enter into possession when there is a default under standard condition 9(1)(b) unless he obtains the court's authority under s.24(1), so he cannot operate his remedy of ejection without an application under the same section. The two remedies are intrinsically interrelated. In most cases the issues affecting the exercise of the remedies of entering into possession and ejection of the debtor are the same. If the debtor is in occupation of the subjects, the remedy of possession of the subjects alone will be of little avail to the creditor, since without free occupation there will be no rent to recover.

[42] The sheriff summarised his conclusions in these terms:

"(1) Section 24(1) of the 1970 Act makes no provision for ejection as a remedy for default: such a remedy only arises under section 5 of the 1894 Act.

(2) 'Formal requisition' under section 5 requires the provision to all affected parties of details of principal and interest said to be due; the periods over which interest has been applied; and the consequences of non-payment.

(3) In section 5 the words 'after formal requisition' qualify everything that precedes them.

(4) The letter of 20 June 1995 does not constitute 'formal requisition' in terms of section 5."

[43] We agree with the submission by counsel for the Bank that the Sheriff erred in holding that warrant for ejection can only be granted if a formal requisition of payment has been made in terms of section 5 of the 1894 Act. For the reasons given above, warrant for ejection may competently be granted where the debtor in a standard security is in default in terms of standard condition 9(1)(b). The only voucher that is required is a Schedule 7 certificate. No separate requisition is required. The effect of section 24 of the 1970 Act is that such a certificate constitutes a formal requisition for the purposes of section 5. In any event, there is no difference between these provisions. The requirement in a notice of default is the same as a requisition. The word "formal" means no more than that it must be made in the statutory form. Moreover, the comma in the proviso to section 5, and the absence of further words such as "in either case", make it clear that the phrase "after formal requisition" only applies to payment of principal and not to interest.

[44] In our opinion the Bank, provided that it has established default, is entitled to the remedy of ejection.

The default issue

[45] There is no challenge in the defenders' pleadings in either action to the Bank's contractual entitlement to charge interest. They do not put in issue that the Bank was entitled to charge interest on the principal sum, or that it was entitled to charge interest at the rate of 25% per annum. Their challenge is only to the extent that it was charged after the debts came to be classified as bad and doubtful. The questions are thus whether the certificates founded on by the Bank conformed with the requirements of Schedule 7 to the 1970 Act and, if so, whether the Wilsons have rebutted the prima facie evidence of the facts contained therein.

[46] Counsel for the Wilsons submitted that in order to obtain the remedies of possession and ejection, the Bank had to establish that each of the Wilsons was in default by virtue of their failure to pay on demand. The obligation in each of the standard securities to pay on demand all sums of principal, interest and charges meant that the demand must be made of both debtors. Even if the demand letters were to be treated as formal requisitions under section 5 of the 1894 Act, the Bank had not demanded repayment from Mrs Annette Wilson and Mrs Norma Wilson. This submission overlooks the provision in declaration (2) that the expression "the Obligant" meant both of the debtors together "and/or any one or more of them". It is clear that a demand made of any one of the debtors is sufficient to entitle the Bank to exercise the remedies open to it against all of them.

[47] Counsel further submitted that the certificates under Schedule 7 failed to satisfy the requirement to specify the nature of the default and full details thereof. In particular, in specifying the nature of the default, reference should have been made to the fact that by the letters of 20 June 1995 Francis Wilson and John Wilson respectively had been called upon to make payment and had failed to do so. The requirement to provide details meant that reference should have been made to the rates of interest applicable from time to time. Where the evidence established that a "penal" rate of interest had been applied, and where the certificates and demand letters failed to give notice to the debtors of what interest rates were applicable, the Bank was obliged to provide some explanation of the application of such a rate of interest. Counsel did not seek to support all of the sheriff's reasoning, and in particular did not submit that there was an obligation on the bank to provide voluminous detail in a Schedule 7 certificate. He did however submit that the Bank required to tell the debtor by means of a letter of demand that he was in default. Counsel accepted however, in the course of discussion, that the purpose of a Schedule 7 certificate was to specify what was the default, and that reference could legitimately be made to the original contract to see what constituted default. Notwithstanding the terms of declaration (1) in each standard security, counsel submitted that where a default rate was applied, and the certificate did not specify the rate, there was nothing before the court to establish default.

[48] A historical review of the forms provided by the statutes is of some assistance. Form No. 2 in Schedule (FF.) to the 1868 Act provided for specification of the principal sum and of a further sum "being the interest due at present on the said principal sum, with such further sum of interest as shall accrue on the said principal sum to be paid". Schedule M Form No. 1 to the 1924 Act provided for specification to be given of the principal sum "with interest thereon at a rate to be specified, with a time limit of three months for payment of the principal sum, interest and expenses. In the 1970 Act, Schedule 6, Form A (the calling-up notice) requires specification to be given of the principal sum, the rate of interest and the date from which interest runs (subject to subsequent adjustment) with a time limit for two months for full payment of the principal sum and interest thereon. Form B (the notice of default) requires detailed specification in the schedule of the obligations in respect of which there is default, with a time limit of one month for fulfilment thereof. The pattern which emerges from these provisions is that, in addition to the principal sum, the rate of interest requires to be specified where there is a time limit, so that the debtor can calculate the exact amount to be paid to the creditor before the time limit expires.

[49] What is required in a Schedule 7 certificate, such as that used in the present case, is "the nature of the default with full details thereof". The sheriff held that the first certificates of default in terms of Schedule 7, stating the position as at 31 March 1998, did not comply with these requirements. He said:

"I do not think the Pursuers have given 'full details' of the nature of the default. The purpose of a Schedule 7 certificate is indeed to put a debtor on notice that a particular kind of default is alleged: its 'nature'. Here, its 'nature' is the non-payment of sums said to be due. I think that the term 'full details' means a detailed breakdown of the sums due, showing what interest rates have been applied to what principal sums, for how long and with what results. To use the current buzzword, there is a requirement for transparency."

In relation to the certificates of default under Schedule 7, stating the position as at 1 February 2006, the sheriff said:

"For the same reasons as I set out in relation to the arguments put to me on the terms of the earlier certificate, I do not think it provides 'full details' of the nature of the default; it does not conform to the requirements of Schedule 7 to the 1970 Act."

[50] As counsel for the Bank submitted, there is no requirement for the precise amount due to the creditor to be proved. All that needs to be done is for default to be proved at the time of raising the action. The Sheriff erred in law in holding that the Schedule 7 certificates did not amount to prima facie evidence of default. What was required was "full details" of the default. The certificates in the present case gave full details of both the principal and the interest which were due. It was the failure to pay those sums which comprised the default. By section 27 (1) of the 1970 Act, where a creditor has exercised his power of sale and received the proceeds, he is obliged to hold the funds and apply them in accordance with the provisions of that sub-section. Only at that stage can the precise amounts due under a standard security be determined.

[51] The onus was on the defenders in each action to rebut the prima facie evidence of the certificates. We agree with counsel for the Bank that the sheriff erred in holding that the evidence of Mr Platt had done so. He ought to have sustained the objection to the line of evidence to the effect that the Bank had no contractual entitlement to apply interest at the rate at which it had been applied, since there was no foundation on record for this. Even if the sheriff did not err in repelling the objection, Mr Platt's evidence did not entitle him to make the finding that it demonstrated the inaccuracy of the facts certified in the Schedule 7 certificates. The Wilsons have accepted what might be regarded as a somewhat leonine bargain in respect of interest. The effect of the first declaration in each standard security is that in the absence of agreement on the rate or rates of interest, as to which there is no evidence, they are to be determined by the Bank and to be payable at such dates as may be determined by the Bank. This is what has happened here. In any event, the Sheriff erred in holding that the Bank had failed to establish default, as default was established by its demands for payment on 29 June 1995, by the certified copy bank statements, and by the Wilsons' subsequent failure to pay. Therefore, as counsel submitted, the sheriff ought to have granted decree in terms of section 24 (1).

Decision

[52] For the foregoing reasons, we shall vary the Sheriff's findings in fact in each action as follows:

(1) In finding in fact 8 we shall: (a) delete the words "it purports to certify that"; (b) delete the words "was due" and substitute the words "were liable to repay", and delete the word "in" before the words "the sum"; (c) insert the word "Wilson" after the initials "F J", and delete the word "(sic)"; (d) delete from the words "the entity" to the words "in fact"; and (e) after the words "a partner" insert the words "is erroneously rendered as F J Associates".

(2) In finding in fact 9 we shall: (a) delete the words "this purports to certify"; (b) delete from the words "extent of" to the word "their" and substitute the words "first defender had defaulted in the performance of his"; and (c) delete the words "was stated as non-payment of" and substitute the words "consisted of his failure to repay".

(3) In finding in fact 10 we shall delete the words "it purports to certify that".

(4) In each of findings in fact 11 and 12, we shall add at the end: "Further interest has accrued on that sum. The sums due to the pursuers on the said account have not been repaid."

(5) In finding in fact 13 we shall: (a) delete the words "It purports to certify that" and (b) delete the words "and states inter alia that".

(6) We shall add a new finding in fact 14 in these terms:

"The first defender has defaulted in his obligation, under the standard security, to repay on demand the sums due by him to the pursuers."

[53] We shall vary the sheriff's findings in fact and in law in each action, so that they now read as follows:

"(1) The pursuers have proved that the defenders are in default of their obligations under the standard security in terms of standard condition 9(1)(b) of Schedule 3 to the 1970 Act.

(2) The pursuers are entitled to the warrants craved."

[54] We shall thereafter in each action allow the appeal, recall the sheriff's interlocutors dated 2 and 29 May 2007, sustain the first plea-in-law for the pursuers, repel the defenders' pleas-in-law, and grant decree as craved.