Scottish Court of Session Decisions

 

OUTER HOUSE, COURT OF SESSION

[2014] CSOH 176

 

CA53/14

OPINION OF LORD DOHERTY

in the cause

CLIVE JOSEPH ARONSON

Pursuer;

against

(FIRST) THE KEEPER OF THE REGISTERS OF SCOTLAND; (SECOND) FIRSTPLUS FINANCIAL GROUP PLC; (THIRD) PROGRESSIVE FINANCIAL SERVICES LIMITED; and (FOURTH) STEVEN WILLIAM ALEXANDER

Defenders:

Pursuer:  Young QC; Simpson & Marwick

Defender:  Lake QC; Scottish Government Legal Directorate

19 December 2014

Introduction
[1]        The fourth defender is the former heritable proprietor of a flatted dwelling house in Dean Street, Kilmarnock (“the property”).  He granted a standard security over the property in favour of the Bank of Scotland (“the Bank”) which was registered in the Land Register (“the register”) on 19 March 1998.  That date was also the date of first registration of the property.  Thereafter the fourth defender granted three further standard securities, one in favour of the second defenders which was registered on 6 December 2002, and two in favour of the third defenders which were registered on 27 October 2003 and 12 October 2004 respectively.  The Bank’s standard security secured all sums due and to become due by the fourth defender to the Bank.

[2]        Repayments on the fourth defender’s home loan with the Bank fell into arrears.  The Bank did not serve a calling-up notice.  It proceeded on the basis that the default in repayment of the home loan was a default in terms of standard condition 9(1)(b) of Schedule 3 to the Conveyancing and Feudal Reform (Scotland) Act 1970 (“the 1970 Act”).  It commenced proceedings against the fourth defender in Kilmarnock Sheriff Court.  It sought warrant to sell the property in terms of s. 24 of the 1970 Act.  The fourth defender did not defend the action.  On 6 April 2010 the Sheriff pronounced decree in absence against him.  The Sheriff (i) found and declared that the fourth defender was in default within the meaning of standard condition 9(1)(b); (ii) granted warrant to the Bank in terms of s. 24 inter alia to enter into possession of the property and to sell it; (iii) ordained him to vacate the subjects and to remove, under pain of ejection.  The pursuer obtained extract of that decree on 26 May 2010.

[3]        On 24 November 2010 the Supreme Court delivered its judgment in Royal Bank of Scotland plc v Wilson 2011 SC (UKSC) 66.  Professor Gretton described it as “a bombshell decision” (“Enforcing Standard Securities”, Conveyancing 2010, 129 at p 130).  “[A]n issue that had been subject to forty years of uniform interpretation, an issue on which land titles beyond count have been settled…all this was overturned…” (Upsetting the Apple-Cart: Standard Securities in the Supreme Court, Edin LR Vol 15 p. 251)

[4]        Having obtained warrant from the court to sell the property under the power of sale in the standard security, the Bank duly advertised it and concluded missives for sale with the pursuer.  In implement of the missives the property was disponed to the pursuer on 25 February 2011.  The disposition narrated that sale had been in exercise of the Bank’s power of sale as creditor in the standard security and that the price had been the best that could reasonably be obtained.  The dispositive clause set forth that the subjects disponed were “ALL and WHOLE the subjects known as and forming [X] Dean Street, Kilmarnock, KA3 1EL being the subjects registered in the Land Register of Scotland under the said Title Number AYR8760; the whole right, title and interest of the said Steven Alexander and ourselves the said Bank of Scotland plc in and to the said subjects”.  The Bank granted warrandice from its own facts and deeds only “but excepting therefrom any exclusion of indemnity from the answers given to Question 6 in the Form 2”.  It bound the fourth defender in absolute warrandice.

[5]        On 1 March 2011 the pursuer applied to the first defender to register the disposition.  His solicitors completed a Form 2 Application (Land Registration (Scotland) Rules 2006, Rule 9(1)(b)).  Question 6 of Form 2 enquired:

“Is the dealing in implement of the exercise of a power of sale under a heritable security?

If YES

Have the statutory procedures necessary for the proper exercise of such power been complied with?”

 

The pursuer answered the first question in the affirmative and the second question in the negative (because by then it was apparent, following Royal Bank of Scotland plc v Wilson, supra, that the fourth defender’s default in repayment had not been a default within the meaning of standard condition 9(1)(b); and that in order for the Bank to have had a right to sell it ought to have served a calling-up notice which the debtor then failed to comply with).

[6]        On 2 March 2011 the first defender registered the disposition and updated the Title Sheet and the Land Certificate.  The Proprietorship Section of the Title Sheet was updated to show the pursuer as proprietor.  Note 3 to that entry stated:

“2.       The title of the said Clive Joseph Aronson is founded on a Disposition by Bank of Scotland Plc to the said Clive Joseph Aronson registered 2 Mar. 2011 in implement of the power of sale under a standard security by Steven Alexander to the Governor and Company of the Bank of Scotland registered 19 Mar. 1998.

Indemnity is excluded in terms of section 12(2) of the Land Registration (Scotland) Act 1979 in respect of any loss arising as a result of the Disposition being reduced or declared or found to be void because of any defect or failing in the exercise of the statutory procedures necessary for the proper exercise of the power of sale.”

 

The Charges Section of the Title Sheet was updated by removing the listing of the Bank’s standard security.  The entries for the second and third defenders’ standard securities were not removed from the Charges Section, but they were renumbered as entries 1, 2, and 3.  Notes were appended to each of those entries excluding indemnity

“in respect of any loss arising from rectification of the register to delete the above standard security or from the subjects in this title being declared or found not to have been disburdened of the above standard security in terms of section 26(1) of the Conveyancing and Feudal Reform (Scotland) Act 1970.”

 

In this action the pursuer seeks rectification of the Register in terms of s. 9(1) of the Land Registration (Scotland) Act 1979 (“the 1979 Act”) by deleting entries 1, 2, and 3 in the Charges Section.  The first defender is the only defender to have lodged defences.  The position adopted in the defences is that there is no inaccuracy in the Title Sheet.  The matter came before me for a Debate on the Commercial Roll.

[7]        The parties entered into a Joint Minute agreeing that productions 6/1 to 6/11 are true and accurate copies of original documents and may be taken as an accurate record of their contents without being spoken to by any witness.  Quoad ultra the parties renounced probation.

[8]        I was not advised of the terms of the missives of sale between the Bank and the pursuer or the date those missives were concluded.  Neither the principal nor a copy of the Bank’s standard security was produced.  However, both Mr Young and Mr Lake proceeded on the basis that the Schedule 3 standard conditions had been incorporated in the Bank’s security; and that the security did not contain any other terms or conditions which were material to the discussion.

 

The relevant statutory provisions
[9]        Part II of the 1970 Act provided at the material times:

“11.— Effect of recorded standard security, and incorporation of standard conditions.

(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….

…

24.— Application by creditor to court for remedies on default.

(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).

…

26.— Disposition by creditor on sale.

(1)        Where a creditor in a standard security has effected a sale of the security subjects, or any part thereof, and grants to the purchaser or his nominee a disposition of the subjects sold thereby, which bears to be in implement of the sale, then, on that disposition being duly recorded, those subjects shall be disburdened of the standard security and of all other heritable securities and diligences ranking pari passu with, or postponed to that security.

(2)        Where on a sale as aforesaid the security subjects remain subject to a prior security, the recording of a disposition under the foregoing subsection shall not affect the rights of the creditor in that security, but the creditor who has effected the sale shall have the like right as the debtor to redeem the security.

27.— Application of proceeds of sale.

(1)        The money which is received by the creditor in a standard security, arising from any sale by him of the security subjects, shall be held by him in trust to be applied by him in accordance with the following order of priority—

(a)        first, in payment of all expenses properly incurred by him in connection with the sale, or any attempted sale;

(b)        secondly, in payment of the whole amount due under any prior security to which the sale is not made subject;

(c)        thirdly, in payment of the whole amount due under the standard security, and in payment, in due proportion, of the whole amount due under a security, if any, ranking pari passu with his own security, which has been duly recorded;

(d)        fourthly, in payment of any amounts due under any securities with a ranking postponed to that of his own security, according to their ranking,

and any residue of the money so received shall be paid to the person entitled to the security subjects at the time of sale, or to any person authorised to give receipts for the proceeds of the sale thereof.

…

Schedule 3 THE STANDARD CONDITIONS

…

9.— Default.

(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.— Rights of creditor on default.

(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.…”

 

[10]      Part I of the 1979 Act provided at the material times:

“2.— Registration.

…

(3)        The creation over a registered interest in land of any of the following interests in land—

(i)         a heritable security;

(ii)        a liferent;

(iii)       an incorporeal heritable right,

shall be registrable; and on registration of its creation such an interest shall become a registered interest in land.

(4)        There shall also be registrable—

(a)        any transfer of a registered interest in land including any transfer whereby it is absorbed into another registered interest in land;

(b)        any absorption by a registered interest in land of another registered interest in land;

(c)        any other transaction or event which (whether by itself or in conjunction with registration) is capable under any enactment or rule of law of affecting the title to a registered interest in land but which is not a transaction or event creating or affecting an overriding interest.

…

3.— Effect of registration.

(1)        Registration shall have the effect of—

(a)        vesting in the person registered as entitled to the registered interest in land a real right in and to the interest and in and to any right, pertinent or servitude, express or implied, forming part of the interest, subject only to the effect of any matter entered in the title sheet of that interest under section 6 of this Act so far as adverse to the interest or that person's entitlement to it and to any overriding interest whether noted under that section or not;

(b)        making any registered right or obligation relating to the registered interest in land a real right or obligation;

(c)        affecting any registered real right or obligation relating to the registered interest in land,

insofar as the right or obligation is capable, under any enactment or rule of law, of being vested as a real right, of being made real or, as the case may be, of being affected as a real right.

…

 

4.— Applications for registration.

(1)        Subject to subsections (2) and (2A) below, an application for registration shall be accepted by the Keeper if it is accompanied by such documents and other evidence as he may require.

…

5.— Completion of registration.

(1)        The Keeper shall complete registration—

(a)        in respect of an interest in land which is not a heritable security, liferent or incorporeal heritable right—

(i)         if the interest has not previously been registered, by making up a title sheet for it in the register in accordance with section 6 of this Act, or

(ii)        if the interest has previously been registered, by making such amendment as is necessary to the title sheet of the interest;

(b)        in respect of an interest in land which is a heritable security, liferent or incorporeal heritable right or in respect of the matters registrable under section 2(4) of this Act by making such amendment as is necessary to the title sheet of the interest in land to which the heritable security, liferent, incorporeal heritable right or matter, as the case may be, relates,

and in each case by making such consequential amendments in the register as are necessary.

…

6.— The title sheet.

(1)        Subject to subsection (3) below, the Keeper shall make up and maintain a title sheet of an interest in land in the register by entering therein—

(a)        a description of the land …

(b)        the name and designation of the person entitled to the interest in the land and the nature of that interest;

…

(d)        any heritable security over the interest;

…

(f)         any exclusion of indemnity under section 12(2) of this Act in respect of the interest;

(g)        such other information as the Keeper thinks fit to enter in the register.

…

9.— Rectification of the register.

(1)        Subject to subsection (3) below, the Keeper may, whether on being so requested or not, and shall, on being so ordered by the court or the Lands Tribunal for Scotland, rectify any inaccuracy in the register by inserting, amending or cancelling anything therein.

(2)        Subject to subsection (3)(b) below, the powers of the court and of the Lands Tribunal for Scotland to deal with questions of heritable right or title shall include power to make orders for the purposes of subsection (1) above.

…”

 

Submissions for the pursuer
[11]      Prior to the decision of the Supreme Court in Royal Bank of Scotland plc v Wilson, supra, the universal understanding of the profession had been that a monetary default in relation to the secured obligation was a default within the meaning of standard condition 9(1)(b); that such default entitled the creditor to exercise the power of sale in standard condition 10(2) following (i) the service of a notice of default and the expiry of the notice period, or (ii) the obtaining of warrant from the court in terms of s. 24 to exercise the power of sale.  The Bank had obtained its s. 24 warrant prior to the Supreme Court’s decision.  The warrant to sell granted by the sheriff was ex facie valid.  It had been extracted and it had not been recalled or reduced.  The Bank had duly proceeded to advertise the property for sale, conclude missives with the pursuer, and grant him a disposition.

[12]      The pursuer made application on Forms 2 and 4 to the first defender to register the transfer of the registered interest in land comprising the property.  He provided her with the disposition, the extract decree, the certificate of advertisement of the sale of the property, and the SDLT5 certificate.  He declared (Question 6) that the dealing was in implement of the exercise of a power of sale under a heritable security, but that the statutory procedures necessary for the proper exercise of that power had not been complied with.  The first defender accepted the application and completed registration of the transfer.  She amended the Title Sheet by entering the pursuer as proprietor in the Proprietorship Section and by removing the entry for the Bank’s standard security from the Charges Section.  Thus, according to the register, the property remains burdened by the second and third defenders’ securities.  It was estimated that there were perhaps 200-300 other cases with circumstances similar to those in the present case. 

[13]      Mr Young submitted that the second and third defenders’ standard securities

ought not to appear in the Charges Section.  The effect of s. 26(1) of the 1970 Act was that the property had been disburdened of not only the Bank’s security but also of the postponed securities.  The Bank was “a creditor in a standard security” who “has effected a sale of the security subjects”.  It had granted to the purchaser (the pursuer) a disposition of the subjects sold “which bears to be in implement of the sale”.  That disposition had been “duly recorded” in the Land Register when it was registered by the first defender (s. 26(1) and s. 53 of the 1970 Act as applied by s. 29(2) of the 1979 Act).  It followed that on the disposition being duly recorded the property was “disburdened of the [Bank’s] standard security and of all other heritable securities and diligences ranking pari passu with, or postponed to that security”.

[14]      The word “sale” in s. 26(1) ought to be given its ordinary meaning.  That ordinary meaning was wide enough to cover circumstances such as those in the present case - where a sale had taken place but there had been some departure from the proper statutory procedure.  The fact of the matter here was that the Bank obtained a warrant for sale from the sheriff court.  It had done so in good faith and in accordance with what was universally understood at the time to be an appropriate procedure in the circumstances.  In light of Royal Bank of Scotland plc v Wilson, supra, the Bank and the sheriff had proceeded upon an erroneous understanding of the law: but it could not be said that the sheriff had exceeded his jurisdiction or that the decree granting warrant for sale was otherwise void or fundamentally null.  It fell to be treated as effective unless and until it was reduced.  The disposition also fell to be treated as valid and effective unless and until it was reduced.  The first defender’s registration of the disposition had recognised that.  In those circumstances the Bank had “effected a sale” in terms of s. 26(1), and all the other requirements of the subsection were also satisfied.

[15]      The first defender’s construction involved reading words of restriction into s. 26(1) which were not there.  There were not good grounds - on a purposive construction or otherwise - for giving “sale” a meaning which was narrower than its ordinary meaning.

[16]      The objects of s. 26(1) were to facilitate the sale of the security subjects by the creditor by disburdening them of pari passu and postponed securities.  That disburdenment without the need for discharges of postponed and pari passu securities was intended to be for the benefit of the selling security holder, and the purchaser, and also (when read together with s. 27) the pari passu and postponed security holders.  Reference was made to Professor McDonald’s Conveyancing Manual (7^th ed.), paragraph 22.45; Halliday, Conveyancing Law and Practice (2^nd ed.), paragraph 36-62; Halifax Building Society v Smith (and Sheriff Clerk of North Strathclyde at Paisley v. Paterson) 1985 SLT (Sh Ct) 25, per Sheriff Principal Caplan at pages 28 and 32; Newcastle Building Society v White 1987 SLT (Sh Ct) 81, per Sheriff Principal Caplan at page 85F.

[17]      The security holder who enforced his security by sale held the proceeds of sale in trust.  After paying for the expenses of sale he was obliged to account first to any prior security holder; then to share sale proceeds with any holder of a security ranking pari passu; and in the event of there being any balance remaining to distribute it to postponed security holders (s. 27(1)).

[18]      The word “sale” ought to be construed as having the same meaning in both sections 26 and 27.  It could not have been the statutory intention that any departure whatsoever from the statutory procedures for exercise of the power of sale in the standard security should put the sale outwith the scope of both sections.

[19]      The first defender’s approach was inconsistent and had curious results.  She had accepted the disposition and had registered it.  It had been “duly recorded”.  She had recognised that the property had been disburdened of the Bank’s security - she had removed the entry for that security from the Charges Section.  That could only have been on the basis that the property had been disburdened of it in terms of s. 26(1) when the disposition had been registered - yet she maintained that the sale was not one to which s. 26 applied.  If that was correct the second and third defenders’ securities still burdened the property notwithstanding the fact that it had been sold by the Bank and full value for it had been obtained and distributed in accordance with s. 27.  Having accepted and registered the disposition the first defender ought to have amended the Charges Section to remove the entries for the second and third defenders’ securities.  It was inequitable that purchasers such as the pursuer should find themselves in the position of having to obtain discharges of any pari passu or postponed securities.  The upshot here was that the second and third defenders would obtain a windfall which they would not have obtained had the proper procedure for exercise of the right of sale been followed by the Bank.

[20]      If the pursuer was right as to the proper construction of s. 26(1), and as to the result in the circumstances of this case, then it was plain that the entries for the second and third defenders’ securities in the Charges Section were an inaccuracy in terms of s. 9 of the 1979 Act.  For the purposes of s. 9 “inaccuracy” was to be given a wide construction encompassing any incorrect or erroneous entry in, or omission from, the register.  The question was whether there was an inaccuracy - not whether the first defender had acted reasonably or otherwise in the carrying out of her duties.  Reference was made to Brookfield Developments Ltd v Keeper of the Registers of Scotland 1989 SLT (Lands Tr) 105; Safeway Stores plc v Tesco Stores Ltd 2004 SC 29, per Lord Hamilton at paragraphs 69, 71.  The rectification sought would not prejudice a proprietor in possession - creditors under standard securities are not proprietors in possession (Kaur v Singh (No. 1) 1999 SC 180).  Further, and in any event, as indemnity had been excluded rectification was competent (s. 9(3)(a)(iv)).

 

Submissions for the first defender
[21]      Mr Lake accepted that if the property had indeed been disburdened of the postponed securities there would be an inaccuracy in the register; and that rectification of the register would be competent and appropriate to remove the entries for those securities from the Charges Section.  He submitted, however, that the property had not been disburdened of those securities.

[22]      Standing the decision in Royal Bank of Scotland plc v Wilson, supra, serving of a calling-up notice had been a prerequisite to exercising the power of sale in the standard security.  However, no calling-up notice had been served.  There had been no default (either in failing to comply with a calling-up notice or in terms of standard condition 9(1)(b)) entitling the Bank to exercise the power of sale in the standard security.  The Bank had not been entitled to apply to the court in terms of s. 24 for warrant to exercise the power of sale: and there had been no grounds entitling the court to grant warrant to the Bank to exercise the power of sale in the security.

[23]      On a proper construction of section 26 “sale” meant a sale in accordance with one or other of the statutory procedures for sale by a creditor set out in the Act.  While if the expression was interpreted literally it would be wide enough to include the sale by the Bank, a purposive construction pointed to a different result (R(Quintavalle) v Secretary of State for Health [2003] 2 AC 687, per Lord Bingham at paragraphs 8-10, Lord Steyn at paragraph 21, Lord Hoffman at paragraph 32, and Lord Millet at paragraphs 38-39; R v Secretary of State for the Environment, Transport and the Regions, Ex parte Spath Holme Limited [2001] 2 AC 349, per Lord Nicholls at page 397D-E; Comhairle Nan Eilean Siar v Scottish Ministers 2013 SC 548, per Lady Smith at paragraph 46; cf. Board of Managers of St Mary’s Kenmure v East Dunbartonshire Council [2014] CSIH 46, per Lady Smith at paragraph 32).  Part II of the 1970 Act contained a code regulating the creation, effect, enforcement and discharge of standard securities.  Part of the policy of that part of the Act was the protection of debtors (Royal Bank of Scotland plc v Wilson, supra).  That policy would be frustrated if s. 26 was construed so as to extend to a sale where the statutory procedures which Part II provided for had not been observed.  S. 26 was designed to facilitate sales following the statutory procedures (Halifax Building Society v Smith(and Sheriff Clerk of North Strathclyde at Paisley v Paterson), supra, per Sheriff Principal Caplan at pages 28 and 32; Newcastle Building Society v White, supra, per Sheriff Principal Caplan at page 85E-F).  There was no reason to suppose that Parliament intended the benefits of s. 26(1) to be conferred in circumstances where the statutory procedures had not been complied with.  To construe s. 26(1) as extending to a sale where the statutory procedures had not been complied with would be contrary to the canon of construction that a party ought not to be allowed to benefit from his own wrong (Bennion, Statutory Interpretation (6^th ed.), pages 1014-1017).

[24]      Mr Lake accepted that the first defender had registered the transfer effected by the disposition and that her amendment of the Charges Section to delete the Bank’s security was attributable to her treating the property as having been disburdened of that security.  No explanation as to the basis upon which that had been done was given in the first defender’s pleadings or written note of argument.  No clarity on this point was provided by Mr Lake.  He suggested that “at first glance” it might appear that that disburdenment arose through the application of s. 26.  The first defender had been presented with a disposition with bore to be in implement of a power of sale.  In doing what she had done she had exercised a judgement.  If the disburdenment of the Bank’s security had been by virtue of s. 26 then it had been erroneous.  There had not been a sale falling within the ambit of s. 26.

[25]      I queried whether the first defender had treated the disposition as being a non domino; and whether the doctrine of confusio might have played any part in the first defender’s thinking.  Neither matter had been mentioned in the first defender’s pleadings or note of argument, and Mr Lake was unable to clarify whether in fact either had played any part in the first defender’s decision to proceed as she did.  His position was that the specifics of what the first defender had or had not done in the present case did not affect the critical issue - the proper construction of s. 26(1).

[26]      It was possible that both s. 26 and s. 27 applied only to sales where the statutory procedures had been properly complied with.  Alternatively, Parliament may have intended to impose the burden of s. 27 on all sales (whether or not the statutory procedures for sale had been complied with), but to confer the benefit of s. 26 only where there had been such compliance.  However, since the proper construction of s. 26 was clear it was unnecessary to arrive at a concluded view as to the proper construction of s. 27.

[27]      S. 26 applied only to sales where the requirements of the 1970 Act had been complied with by the creditor.  Where a sale had not complied with those requirements it was unlawful and thus fell outwith the scope of the section.  It was not correct to proceed on the basis that the section applied both to sales which complied with those requirements and also to sales which did not.  It mattered not that sales in the latter category might continue to be recognised as valid sales unless and until they were reduced - Parliament’s intention was that only the former category of sales fell within the section’s ambit.  It followed that whether or not the sale and disposition to the pursuer were vulnerable to challenge was not the determining issue.  Nonetheless it was clear here that in the event of the pursuer’s title being challenged the protection provided to a disponee by s. 41(2) of the Conveyancing (Scotland) Act 1924 (as substituted by s. 38 of the 1970 Act) would not be a defence because the exercise of the power of sale by the Bank had not been ex facie regular.

 

Decision and reasons
[28]      The first defender’s approach in the present case and in similar cases appears to follow precisely the instructions to staff set out in the first defender’s Legal Manual (Specialist Topics, Power of Sale, Standard Securities, paragraphs 22.3, 22.6.2, 22.9):  but the rationale for the approach is unclear.  In addition, it seems odd that the first defender should exclude indemnity in respect of any loss arising (i) from rectification of the register to delete each of the postponed securities and (ii) from the property being declared or found not to have been disburdened of that security in terms of s. 26(1).  The inclusion of the postponed securities in the Charges Section can only be on the basis that the property has not been disburdened of them.

[29]      The first defender accepted the disposition and registered it, notwithstanding the answer to Question 6 on Form 2.  It is difficult to see any basis upon which she could lawfully have refused to register it.  The disposition was not a non domino: it bore to be in exercise of the creditor’s right of sale, a right which the sheriff had granted the Bank warrant to exercise.  The disposition and the decree which preceded it are both valid unless and until they are reduced.  They might possibly be the subject of a challenge in the future (and a potential challenge might not be excluded by s. 41(2) of the Conveyancing (Scotland) Act 1924 (as substituted by s. 38 of the 1970 Act)), but the decree and the disposition are valid as matters stand.  Neither is a nullity.

[30]      The first defender deleted the Bank’s standard security from the Charges Section but retained the entries for the second and third defenders’ securities.  That accords with the instructions in the Legal Manual; but the reason for this difference in treatment was not explained in the Legal Manual, and was not explained in the first defender’s pleadings, or her note of argument, or in Mr Lake’s oral submissions.  The Bank’s grant of fact and deed warrandice in the disposition would prevent it from asserting against the property any right under the standard security, but it would not disburden the property of the security.  Another possibility aired in submissions was that as the disposition conveyed to the pursuer Mr Alexander’s title to the property and the Bank’s interest under the standard security, the latter was absorbed in the former and was extinguished confusione; and that that absorption was registrable in terms of s. 2(4) of the 1979 Act.  However, the argument was not fully developed, and Mr Lake was unable to confirm that it was in fact the foundation for the first defender’s approach.  Even if the argument is a sound one, it is not clear to me that all dispositions granted by creditors selling security subjects are likely to be in such terms (though I note that the formulation used accords with the styles of dispositive clauses for a creditor under a standard security suggested in Halliday, Conveyancing Law and Practice, (2^nd ed.), paragraph 54-47 and in Greens Practice Styles, (ed. Paisley),Vol. III, E06-11).  On the material placed before me it rather looks like the first defender has simply followed the instructions in the Legal Manual which bear to apply to all cases where Question 6 has been answered in the negative: and that the basis relied upon for disburdenment of the property from the Bank’s security has been s. 26(1).

[31]      Be that as it may, the question before the court is not the rationality or otherwise of the various decisions the first defender made following her acceptance of the pursuer’s application.  The issue is “Do the sale and disposition to the pursuer fall within the ambit of s. 26(1)?”  The matter is one of statutory construction.

[32]      The starting point is that on a plain reading of s. 26(1) the ordinary and natural meaning of the word “sale” is apt to include any case where the subjects have been sold by a creditor in a standard security - whether or not there has been any irregularity in the proceedings which preceded the sale.  Reading “sale” as meaning only those sales where every requirement of the 1970 Act preliminary to a sale has been complied with is a strained construction.  It involves reading in words of restriction which do not appear in s. 26(1).

[33]      Similarly, in s. 27 “sale” appears to me to have its ordinary and natural meaning.  There is no good reason to give it a narrower meaning.  It cannot have been Parliament’s intention that sale proceeds received by a creditor should be held in trust by him in terms of s. 27 in cases where there was no such underlying irregularity, but that no such trust obligation should arise in cases where there had been an irregularity.  That would make no sense at all.

[34]      For disburdenment in terms of s. 26(1) to occur all the other requirements of the subsection (i.e. in addition to there having been a sale) also have to be met.  It follows that it is possible that there could be sales within the meaning of s. 26 and s. 27 to which disburdenment did not apply because one of the other requirements is not satisfied. In such cases s. 27 would still apply to any proceeds of sale.  However s. 27 implicitly recognises that in the normal case the security subjects (or the part of the security subjects) which have been sold will have been disburdened of the selling creditor’s security and all securities ranking pari passu with, or postponed to, that security.  Thus, while there is an obligation on the creditor to pay such other security holders according to their ranking, s. 27 makes no provision for disburdenment or discharge of those securities on the proceeds being applied in accordance with the section (as opposed to discharge or receipt for any payment made by the creditor (s. 27(2),(3)); cf. the position of prior security holders - the creditor selling the security subjects has the right to redeem such securities (s. 26(2), s. 27(1)(b)).

[35]      So the ordinary and natural meaning of “sale” in both sections 26 and 27 includes a sale such as that made by the Bank to the pursuer.  Does a purposive construction produce a different result?  In my opinion it does not.  Mr Lake’s approach focuses on protection of the debtor as being an object of Part II.  That is no doubt so, but it is far from the only object: and it does not appear to me to be the main object of s. 26.  The main object is to facilitate the sale of the security subjects by the creditor to a purchaser by disburdening them of pari passu and postponed securities.  That disburdenment, without the need for discharges, is intended to be for the benefit of the selling security holder, the purchaser, and (when read together with s. 27) the pari passu and postponed security holders.  Departing from the natural and ordinary meaning of sale in s. 26 to exclude sales such as the sale to the pursuer would mean that that object, and that intention, would not be served in the case of those sales.

[36]      What then of the argument that s. 26(1) should be construed so as to prevent sellers such as the Bank from benefiting from their own wrong?  In Welwyn Hatfield Borough Council v Secretary of State for Communities and Local Government [2011] 2 AC 304, Lord Mance made reference to the principles said by Mr Lake to be in play here:

“45       The council relies upon a principle stated in Halsbury’s Laws of England’s, 4th ed reissue, vol 44(1) (1995), paras 1450, 1453 in these terms:

‘1450.  Law should serve the public interest.  It is the basic principle of legal policy that law should serve the public interest . . . Where a literal construction would seriously damage the public interest, and no deserving person would be prejudiced by a strained construction to avoid this, the court will apply such a construction.  In pursuance of the principle that law should serve the public interest, the courts have evolved the important technique known as construction in bonam partem (in good faith).  If a statutory benefit is given only if a specified condition is satisfied, it is presumed that Parliament intended the benefit to operate only where the required act is performed in a lawful manner.

1453.  Illegality . . . Unless the contrary intention appears, an enactment by implication . . . imports the principle of legal policy embodied in the maxim nullus commodum capere potest de injuria sua propria (no one should be allowed to profit from his own wrong). The most obvious application of this principle against wrongful self-benefit relates to murder and other unlawful homicide.’

46        Bennion on Statutory Interpretation, 5th ed (2008), section 264, also discusses the principle that law should serve the public interest.  It comments that ‘all enactments are presumed to be for the public benefit’ and that ‘[t]his means that the court must always assume that it is in the public interest to give effect to the intention of the legislator, once this is ascertained’; and, later, that ‘Construction in bonam partem is related to three specific legal principles.  The first is that a person should not benefit from his own wrong’.  The second principle precludes a person from succeeding if he has to prove an unlawful act to claim the statutory benefit, and the third is that where a grant is in general terms there is always an implied provision that it shall not include anything which is unlawful or immoral.”

 

While I do not rule out entirely the possibility that the circumstances of some sales might be so contrary to public policy that Parliament might be taken to have intended to exclude them from the ambit of s. 26, I am very clear that the circumstances of the sale by the Bank to the pursuer do not fall within any such category.  In treating the loan default as a default in terms of standard condition 9(1)(b), and in proceeding down the s. 24 route, the Bank acted in good faith and in accordance with what was then understood (by the courts, conveyancers, and financial institutions and their advisers) to be a lawful route to sale.  There was no deception or bad faith.  There was no intention to depart from or undermine the proper procedures for sale provided for in Part II (cf. Welwyn Hatfield Borough Council v Secretary of State for Communities and Local Government, supra, per Lord Mance at paragraphs 43-58, per Lord Brown at paragraphs 73, 84).  In such circumstances I see no scope for giving any weight to the canon of construction that a party should not be permitted to benefit from his own wrong.  I am equally clear that there is no justification for giving “sale” in s. 26(1) a strained construction in order to avoid the natural construction producing serious damage to the public interest.  On the contrary, in my view the natural and ordinary meaning relied upon by the pursuer serves the public interest.  On the other hand, deserving persons such as the pursuer would be prejudiced by the strained construction which the first defender suggests.  That strained construction is also one which runs counter to the presumption that a statutory provision should be construed so as not to produce injustice.

[37]      It follows that s. 26(1) applies to the sale and disposition by the Bank to the pursuer. On the disposition being duly recorded in the register the property was disburdened of the Bank’s standard security and of the second and third defenders’ securities.  The retention in the Charges Section of the entries for the second and third defenders’ securities is an inaccuracy in the register.  I shall ordain the first defender to rectify the register in terms of s. 9(1) of the 1979 Act by deleting entries 1, 2 and 3 from the Charges Section.

 

Disposal
[38]      I shall sustain the pursuer’s plea-in-law, repel the first defender’s pleas-in-law, and pronounce decree in terms of the first conclusion.