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Cite as: [2005] ScotSC 74

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AIB Group (UK) Plc v. Guarino [2005] ScotSC 74 (27 October 2005)

Sheriff Scott

A7444/04

AIB GROUP (UK) PLC v MARCO FILIPPO GUARINO

GLASGOW, 27 October 2005.

The Sheriff, having resumed consideration of the cause, sustains the pursuers' first plea-in-law; repels the defender's first and second pleas-in-law; and grants decree de plano; (1) finds and declares that the defender granted a Standard Security in favour of the pursuers registered in the Land Register of Scotland under Title Number GLA 93561 on 18 February 2002 and that (a) the defender is in default within the meaning of condition 9(1)(a) of the standard conditions as set out in Schedule 3 to the Conveyancing and Feudal Reform (Scotland) Act 1970 and the pursuers are entitled to all of the remedies available to them in terms of Section 20of and Schedule 3 paragraph 10 of said Act and (b) the pursuers are entitled to enter into possession of the heritable subjects referred to in the Standard Security known as and forming 43 Sherbrooke Avenue, Glasgow and to sell same; (2) ordains the defender to vacate said subjects and to flit and remove himself, his family, dependents, employees, tenants, sub-tenants and others, whomsoever, with their whole gear and belongings further and from the subjects and to leave the subjects void and redd and that under pain of summary ejection and grants warrant to Officers of Court to summarily eject the defender, his family, dependents, employees, assignees, disponees, agents, licensees, tenants, sub-tenants and whomsoever else may be in or on the subjects; and finds the defender liable to the pursuers in the expenses of the action as taxed; allows an account thereof to be given in and remits same, when lodged, to the Auditor of Court to tax and to report thereon.

Sheriff

NOTE:-

Introduction

For the purposes of the debate, it was beyond dispute that the defender in this action had granted a Standard Security in favour of the pursuers. The Standard Security related to subjects at 43 Sherbrooke Avenue in Glasgow. A copy of the deed forms part of No 6/1 of process.

In article 2 of condescendence, the pursuers, inter alia, aver that:

"The Standard Security granted by the defender bound the defender to repay on demand the money advanced to him by the pursuers together with "all present, future, actual and/or contingent liabilities" including such interest as was due thereon."

The pursuers also aver that the Standard Security "...secured sums due by the defender under and in terms of a Guarantee granted by him and other (sic) in favour of the pursuers."

On 17 September 2004, the pursuers served on the defender calling-up notices relating to the Standard Security. The defender, however, contends in Answer 2 that, as at the date of service of the calling-up notices, "There was no debt in respect of which the pursuers were entitled to call-up the Standard Security." and that, therefore, the calling-up notices had no effect.

Defender's Submissions

In support of the defender's preliminary pleas, Mr Humphreys made reference to the terms of the Guarantee No 6/2 of process. He submitted that before the defender qua guarantor had any obligation to make payment under the Guarantee, there had to have been a demand for payment. The defender founded upon the decision of the Inner House in the case of The Royal Bank of Scotland Ltd v Brown 1982 SC 89. The pursuers' pleadings were bereft of any averment to the effect that, at or prior to 17 September 2004, there had been a demand from the pursuers to the defender seeking payment under the Guarantee. Accordingly, the calling-up notices could have no effect.

Mr Humphreys submitted that a calling-up notice per se could not amount to a demand under and in terms of the Guarantee. He referred the court to the terms of the calling-up notices which had been served on the defender. There was no mention of the Guarantee and, accordingly, there could be no correlation between the calling-up notice and the Guarantee itself. Following the case of Brown, the demand in relation to the Guarantee should have specified that the sums sought were due by the principal debtor in terms of the Guarantee.

Furthermore, the Guarantee referred to interest being payable from the date of demand. However, the calling-up notice referred to a different date being 10 September 2004. Finally, Mr Humphreys submitted that the calling-up notice was a statutory notice with a specific function. Under Section 19 of the 1970 Act, its function was to require the discharge of a debt secured by a Standard Security. It could not serve as a demand in relation to a collateral obligation which itself required service of a demand to constitute the debt. The service of a calling-up notice presupposed that all necessary pre-requisites had been complied with.

The case of Gardiner v Jacques Vert Plc 2002 SLT 928 was said to be distinguishable from the present situation. In the present case, there were averments in the defences to the effect that no sums were due as at the date of the issue of the calling-up notice. The problem for the defenders in Gardiner was that there had been no averment to that effect.

Accordingly, Mr Humphreys invited the court to dismiss the pursuers' action.

Pursuers' Submissions

At the outset, Mr Lloyd suggested that the issue for the court to determine was whether the pursuers were entitled to proceed with the action for declarator and repossession. As a starting point, he selected the Conveyancing and Feudal Reform (Scotland) Act 1970 and, in particular, Sections 19 and 20 thereof read along with Standard Condition 8 in Schedule 3 to the Act.

Mr Lloyd argued that the defender's line of argument failed on two grounds namely:

(1) There was a presupposition to the effect that a demand for payment was required to constitute the debt in respect of which the pursuers sought to call up the Standard Security. Reference was made to Gloag on Contract at pp 707-708. Mr Lloyd founded upon the proposition that, in formal writings, a clause consenting to registration for execution, in effect, facilitated, for instance, a charge for payment without the necessity for any previous demand. Gloag also stated that:

"Even without a consent to registration for execution an obligation to pay on demand is enforceable against a principal obligant without previous notice."

The same passage in Gloag stated that:

"A cautionary obligation, originally contingent, becomes a pure obligation by the principal debtor's default, and may then be at once enforced by summary diligence, if the bond by which it is constituted contains a consent to registration for execution. If there is no such clause, it would appear that, even if the cautioner's obligation is to pay on demand, he is entitled to reasonable notice."

(2) The pursuers, in the present action, were not seeking repayment of the debt. In contrast, they were seeking to exercise their rights and remedies under the 1970 Act. It was, submitted Mr Lloyd, unnecessary for the debt owed by the defender to be constituted by any demand for payment. It was, argued Mr Lloyd, constituted by the demand being made by the service of a calling-up notice. The only demand required was that of the calling-up notice itself. It provided the defender with a period of 60 days within which to make payment of the sum outstanding. Looked at more widely, the service of a calling-up notice was a preliminary step in an enforcement procedure.

Mr Lloyd also observed that the defender had failed to table a plea to the effect that the notice or notices should be reduced ope exceptionis.

If the court were in agreement with the pursuers' argument, then decree de plano should follow. The court was, therefore, invited to sustain the second plea-in-law for the pursuers and, in effect, to repel the defender's pleas.

Decision

(1) Both sides approached the debate on the footing that the pursuers' action was precipitated by failure on the part of the defender to adhere to his cautionary obligations under the Guarantee. The pursuers' pleadings merely state that the calling-up notices "...included sums due under the Guarantee." The defender avers that:

"Prior to 17 September 2004, the Defender had no obligation to make any payment to the Pursuers in terms of the Guarantee. Prior to 17 September 2004, the Pursuers had made no Demand on the Defender to make any payment in terms of the Guarantee. Prior to 17 September 2004, no sums were due by the Defender to the Pursuers. On 17 September 2004, the Pursuers served on the Defender a Calling-Up Notice in respect of the Standard Security. When the said Calling-Up Notice was served, there was no present obligation upon the Defender to make payment to the Pursuers in terms of the Guarantee."

(2) Whatever the actual source of the Defender's indebtedness under the Standard Security, in my opinion, the short answer to the proposition advanced within the final section of the foregoing passage of averment is that, in the context of the present action, a "present obligation to make payment" was not required. It might have been, had the pursuers simply chosen to raise an action for payment under the Guarantee. That is what was done in the case of Brown and I respectfully agree with the decision of the Inner House on the particular facts and circumstances of that case. However, that decision is of no direct relevance as far as the present case is concerned.

(3) The pursuers seek to invoke a statutory procedure which is open to them qua creditors in terms of the standard security granted by the defender. There was no dispute that the security was governed by the terms of the Conveyancing and Feudal Reform (Scotland) Act 1970. Reference was made to Sections 19 and 20 of that Act and, in my view, it is important to recognise the proper effect of these provisions. In Section 19(1) the pre-requisite for the service of a calling-up notice is merely the creditor's intention to require discharge of the debts secured by the standard security.

(4) In the present context, the use of the word "debt" in Section 19(1) is, perhaps, unfortunate. I am nevertheless satisfied that it does not necessarily denote a sum due where a demand for payment of that sum has failed to elicit a satisfactory response. I consider that the word "debt" more aptly refers to the borrowings advanced by the creditor in the standard security.

(5) Whist Mr Humphreys sought to distinguish the case of Gardiner, I do not consider that to be a correct approach. On the contrary, the decision of the court in that case was very much concerned with the purpose and effect of calling-up notices under the 1970 Act. The petitioner in Gardiner was, indeed, bereft of an averment denying that the money was due to the reclaimers other than by reference to an ill-liquid claim. The court concluded that no attempt had been made "to challenge any of the figures specified in the certificates as not being due at the date of the calling-up notice". In the present action, the defender certainly challenges the proposition that a "present obligation" to make payment existed as at 17 September 2004. However, his pleadings are silent as to the accuracy or otherwise of the figures referred to in the calling-up notices, had a demand for payment been previously made.

(6) Be that as it may, the decision of the Extra Division in Gardiner proceeded upon the basis that there was no suggestion that the certificates represented "a statutory requirement to validate the calling-up notices or the sum claimed as being due in the notices." The following passage from the opinion of the court, as delivered by Lord Cameron, coincides with the second line of argument advanced by Mr Lloyd:

"But, in any event, it is plain that the calling-up notice in itself is only a preliminary step to further procedure. If it is not complied with in due time by discharge of the debt due, there is default in terms of Section 9(1)(a) of the 1970 Act and the creditor then becomes entitled to exercise such of his rights under the security as he may consider appropriate. These rights are specifically stated to be in addition to any other remedy that the creditor may have under the contract to which the security relates - see Section 20(1) of the 1970 Act." (931C-931D)

(7) Moreover, it is clear that the court also took the view that, in the context of the 1970 Act procedure, a calling-up notice could, in essence, stand alone. "But counsel for the petitioners could not point to any requirement in the 1970 Act that there had to be any such enquiry, validation or justification of, or constitution of the debt in, the figure specified in the calling-up notice before it was served." (931E-F).

In my opinion, therefore, the argument advanced by the defender is ill-conceived. The calling-up procedure under the 1970 Act does not necessitate that prior constitution of the debt or debts embraced by the sums specified in the calling-up notice or notices served. Accordingly, the pursuers in the present action were, to my mind, perfectly entitled to serve the calling-up notices as and when they did and these notices are now beyond challenge. All that being so, I have acceded to Mr Lloyd's submission to the effect that the defenders' first and second pleas-in-law should be repelled.

Mr Lloyd's other argument proceeded upon the basis that the existence of consent to registration clauses in both deeds, that is to say the standard security itself and the Guarantee, thereby undermined the defenders' argument regarding the need for a prior demand in order to constitute the debt. It will be appreciated that my decision to repel the defenders' preliminary pleas rests upon what I consider to be the proper application of calling-up procedure under the 1970 Act. However, the same result would be achieved were both of Mr Lloyd's arguments to prevail.

In my judgement, the passages in Gloag, provide sufficient authority for the proposition that a prior demand for payment is not required where the relevant deed contains a consent to registration clause. Moreover, in the course of the debate, Mr Humphreys was unable to put forward any colourable argument or, indeed, authority as to why the tenor of these passages was incorrect or inapplicable as far as the circumstances of the present case were concerned. Accordingly, I conclude that both of the pursuers' arguments in this case fall to be upheld, with the result being the same either way.

SHScott.LD.AIB Group