Scottish Sheriff Court Decisions

You are here: BAILII >> Databases >> Scottish Sheriff Court Decisions >> NORTHERN ROCK ASSET MANAGEMENT & THE ROYAL BANK OF SCOTLAND PLC v. HELEN LOUISE MILLER & GRAEME McCONNELL [2012] ScotSC 28 (28 February 2012)
URL: http://www.bailii.org/scot/cases/ScotSC/2012/28.html
Cite as: 2012 GWD 14-287, [2012] ScotSC 28, 2012 SLT (Sh Ct) 58, 2012 Hous LR 2

[New search] [Help]

SHERIFFDOM OF GLASGOW AND STRATHKELVIN AT GLASGOW

B 2832/11 and B 3573/11

Judgement of Sheriff AF Deutsch

in causa

Northern Rock (Asset Management) plc, Northern Rock House, Gosforth, Newcastle upon Tyne, NE3 4PL

PURSUER

against

Helen Louise Millar, 20 Cruachan Street (being the West most house on the lower floor), Thornliebank, Glasgow, G46 8LY

DEFENDER

Act: McEntegart Alt: Dailly

and

in causa

The Royal Bank of Scotland Plc, a company registered in Scotland No 90312 having its registered office at 36 St Andrew Square, Edinburgh

PURSUER

against

Mr Graeme McConnell, residing at 5 Field Square, Glasgow

DEFENDER

Act: Foyle Alt: Dailly

B 2832/11

Glasgow 28 February 2011

The Sheriff having resumed consideration of the debate sustains the defender's first plea in law, repels the first pursuer's pleas, dismisses the action and appoints the parties to be heard on the question of expenses at 9:30 AM on 9 March 2012.

B 3573/11

Glasgow 27 February 2011

the Sheriff having resumed consideration of the debate to the extent necessary sustains the defender's first plea in law, repels the second pursuer's first plea in law plea in law and accordingly refused craves 1 and 2, appoints parties to be heard in relation to further procedure in respect of the second pursuer's remaining plea and upon the question of expenses at 9:30 AM on 9 March 2012.

Note

Introduction

[1] In these two actions the pursuers seek warrant to exercise the remedies of a creditor holding a standard security upon the default of the debtor as well as decree for ejection. An issue of competency is raised by the defenders upon the grounds that certain requirements, which by statute constitute a necessary precursor to such actions, have not been fulfilled. It being accepted that the material circumstances in each of these cases being broadly the same, the parties were agreed that it would be convenient for the court to hear the debates in each simultaneously. From hereon in I shall refer to Northern Rock (Asset Management) plc, the pursuer in the B 2832/11 action, as the "first pursuer" and to Royal Bank of Scotland Plc, the pursuer in the B 3573/11 action as the "second pursuer"

[2] By the Home Owner and Debtor Protection (Scotland) Act 2010 ("the 2010 Act") the Scottish Parliament amended the law relating to the enforcement of standard securities over residential property. It achieved that purpose by making various amendments to the Conveyancing and Feudal Reform (Scotland) Act 1970 ("the 1970 Act") and to the Heritable Securities (Scotland) Act 1894 (the 1894 Act). For instance it amended section 24 of the 1970 Act to provide, in relation to a standard security over residential property where the debtor is in default within the meaning of paragraph (a), (b) or (c) of standard condition 9 (1), that before applying to the court for warrant to exercise the available remedies, the creditor must comply with what are described as "the pre-action requirements". Those pre-action requirements are set out in a new section 24A. By section 24A (8) power is delegated to the Scottish Ministers to make further provision about the pre-action requirements. Parallel provisions to those which I have described in relation to the 1970 Act are made in relation to the 1894 Act. The Scottish Ministers exercised their delegated powers in order to pass the Applications by Creditors (Pre-Action Requirements) (Scotland) Order 2010 (the 2010 Order).

[3] In the course of the debate, the discussion turned upon the proper construction of paragraph 2 (4) of the 2010 Order:

(4) the information required to be provided to the debtor by virtue of [5B (2) (b) of the 1984 Act and section 24A (2) of the 1970 Act] must be provided as soon as is reasonably practicable upon the debtor entering into default.

[4] In both cases the required information was provided to the debtor before the calling up notices relied upon by the pursuers were either served or had expired. I understand it to be accepted that "upon the debtor entering into default" means at or after default. If the "default" referred to in the 2010 Order is a default in the sense of a failure to comply with a calling up notice then it is common ground that the information required to be provided was not provided upon the debtor entering into default. The question which the debate raised for my determination was whether the word "default" as it is used in the 2010 Order refers to a default within the meaning of one of the cases contained in standard condition 9 (1) (a) (b) and (c) or, as contended by the first and second pursuers, merely refers to a failure to pay sums due under the standard security.

Submissions on Behalf of the Defenders

[5] Mr Dailly introduced his submissions with a brief overview. The defenders proposed to argue that, as a matter of law, in order to satisfy the pre-action requirements certain information regarding the mortgage, the current level of arrears and the charges that might be imposed must be provided as soon as reasonably practicable on the debtor going into default. In support of that proposition Mr Dailly said that he intended to take the court through the legislation. He did not believe the proposition was controversial but it would be seen that what was controversial was his next proposition: the term "default" in the context of the pre-action requirements was the concept of default constituted by the service of and thereafter the expiry of a calling up notice. The law had been stated by the UK Supreme Court in Royal Bank of Scotland plc v John Patrick Mc Cormack Wilson and another [2010] UK SC 50: that decision had settled the need, in a case falling within the scope of section 19 (1) of the 1970 Act, for service of a calling up notice.

[6] Upon that understanding of "default", the position of the defenders was that the disclosure of the pre-action information must occur at or after the point in time when the calling up notice expired without its having been complied with. In both of the present cases as pled and in terms of the productions which had been lodged with the initial writs, neither pursuer was offering to prove that there had been compliance in the sense of providing information at or after the expiry of the calling up notice.

[7] A part of the context of repossession actions was that lenders required to adhere to the regime created by the Financial Services Authority in terms of the rules which it made under the Financial Services and Markets Act 2000. The relevant rules were to be found in the Mortgage Conduct of Business Sourcebook. It was chapter 13 of that sourcebook which dealt with the requirement for lenders to do all sorts of things which might be described as "forbearance" or acting reasonably in negotiations with debtors. That regime had applied across the UK including Scotland. What had then occurred was the passing of the 2010 Act, which had been enacted to provide extra protection and which effectively sat on top of the UK rules. The present focus was only upon the Scottish pre-action requirement which, from the standpoint of the debtor, was in many respects much more powerful than the protection offered under the FSA rules. What was said by the defenders in the present two cases was that if the lender did not comply with the statutory pre-action requirements then, because those requirements were a statutory preliminary, non-compliance went to the competency of each action. Any action where there had not been compliance would fall to be dismissed as incompetent.

[8] Moving on to address the substance of his argument in more detail Mr Dailly noted that the pursuers in their pleadings each averred that they had complied with the pre-action requirements. For the purposes of the present actions Mr Dailly submitted that the pre-action requirements were contained within section (5) B (2) of the 1894 Act and 24A (2) of the 1970 Act. The legislation which was of most significance to the present two actions was the 2010 Order. The power to make that statutory instrument was contained in sections 5B (8) of the 1894 Act and 24 A (8) of the 1970 Act.

[9] It was the terms of regulation 2 (4) of the 2010 Order, Mr Dailly said, which formed the crux of the defenders submissions: the information required to be provided "- as soon as is reasonably practicable upon the debtor entering into default." If the information was provided prior to the debtor entering into default then that would not satisfy. That was so because "default" for the purposes of the present proceedings had the same meaning as it possessed in the context of both the 1894 Act and the 1970 Act. (On this occasion Mr Dailly offer no authority for this assertion.)

[10] The defenders' solicitor went on to submit that it was clear from the decision of the Supreme Court in Wilson what "default" meant, it was a term of art. The defender's submission was that the pre-action requirement information must be given to the defender after she or he has entered into default. From a commonsense point of view, Mr Dailly said, the logic of this was that the debtor having got into financial difficulties, the lender would be required to get in touch with the debtor under the FSA's rules, while there might then be some payment equally matters may have reached the serious stage where litigation was contemplated such that the lender served a calling up notice giving the debtor two months to remedy the situation. Default would occur if the notice was not obtempered within two months or earlier if the debtor endorsed the calling up notice accepting a shorter period of one month. When the notice expired default crystallised. In regard to the crystallisation of default, the Scottish Parliament had concluded that at this juncture the debtor required extra protection. To that end they had introduced the pre-action protocol so that at the point in time when default occurred the debtor would be provided with up-to-date information. This would provide the debtor with an extra chance, an additional prompt. In this respect creditors would require to take an additional step.

[11] The 2010 order had come into force on the 30 September 2010. That had been approximately 2 months before the judgement of the Supreme Court in the Wilson case. The two actions presently before the court had been commenced in 2011. There could therefore be no doubt that the 2010 Order applied.

[12] Mr Dailly next referred me to the form 11 C which have been lodged as production in B 3573/11 the action against Mr McConnell (5/3) and at the same time to the Act of Sederunt (Sheriff Court Rules) (Enforcement of Securities over Heritable Property) 2010. In accordance with rule 3.4.3 (2) the creditor had certified compliance with the pre-action requirements. This particular form 11 C made reference to a demand said to have been served on 26 July 2009 as well as to a 15 day letter dated 5 September 2009 as the means by which the debtor had been provided with the prescribed information. This was the information which had been provided in relation to an earlier action against this defender which had been abandoned subsequent to the decision in Wilson. At this point the defenders' solicitor stated candidly that had the information referred to been provided subsequent to the expiry of the calling up notice in the 2011 then his clients would not have an argument to present. In answer to question for myself as to whether the information was up-to-date Mr Dailly stated that it was the defender's position that it was not.

[13] Turning to consideration of B 2832/11 the action in respect of which Ms Miller was the defender Mr Dailly noted that the form 11 C which had been lodged stated that in the 2010 the pursuer had written to the defender intimating her failure to maintain the monthly mortgage payments, detailing mortgage arrears of £2031.95 and an outstanding balance inclusive of charges of £61,106.31. The calling up notice relied upon in this action would have expired on 13 June 2011 long after the information was provided.

[14] Following the decision of the Supreme Court in the Wilson case, the defenders' solicitor submitted, that it was now settled law that in mortgage arrears cases such as the two actions presently before the court, the pursuer must serve a calling up notice in order to place the debtor in default. It was that step which entitled the heritable creditor to raise proceedings under section 5 of the 1894 Act or section 24 of the 1970 Act.

[15] Addressing the Judgement in Wilson Mr Dailly laid particular emphasis on Lord Rodger's comments at paragraph 46 on page 18 and also upon paragraph 51 at page 19 where the decision of the Extra Division in Bank of Scotland v Millward 1999 SLT 901 had been overruled. The judgement had made it clear that "default" in a case involving debt, where a calling up notice had been served, is a term which is expressly defined by section 19 (1) by reference to standard condition 9 (1) (a). In both of the actions presently before the court the pursuers had made specific reference to and had founded upon calling up notices, which following Wilson they were bound to do.

[16] Mr Dailly next referred me to the judgement of Lord Hope and in particular to paragraph 75 of the report. This passage it was submitted made it clear that where a creditor wished to obtain repossession the only available route was through service of a calling up notice.

[17] The defenders' solicitor submitted that what the 2010 Act had done was to make amendments to certain sections of the 1970 Act and the 1894 Act to afford better protection to debtors in relation to the enforcement of standard securities by requiring that certain information must be provided as soon as is reasonably practicable upon the debtor entering into default.

[18] Mr Dailly next took me to the pursuers' pleadings in each case in relation to service of calling up notices and the constitution of default. The defenders position was that as both sets of pursuers had not provided the pre-action requirement information after or on the date of default as required by the 2010 Order each action was incompetent and therefore fell to be dismissed.

Submissions on Behalf of the First Pursuer B2832/11

[19] Mr McEntegart opened by indicating that upon conclusion of his submissions his motion would be for the court to repel the first plea in law for the defender which it was now clear went only to competency. If that plea were to be repelled then it would be appropriate to continue the action to deal with one outstanding issue in relation to a mortgage to rent application which had been made by the defender.

[20] The pursuer's solicitor explained that his submissions would fall into three parts: the pleadings; the relevant statutory provisions and the proper construction of those provisions.

[21] The issue before the court turned upon the meaning of the word "default". In his submissions the defender had failed to identify the mischief, at which the introduction of the pre-action requirements had been directed, nor the context in which the court ought to consider those requirements.

[22] Turning to the pleadings Mr McEntegart noted that the essence of the defender's challenge was that the pursuers must provide certain information to the defender as soon as reasonably practicable upon the defender entering into default. In answer one of the defender's pleadings on page 4 of the record at line 22 through to page six at line 2, there had been quoted verbatim paragraph 2 of the 2010 Order. The defender's contention was that "default" occurred in the present case when a calling up notice had been served and not complied with. Mr McEntegart stated that he did not take issue with the fact that this was the meaning of "default" in terms of standard condition 9 (1) (a) of schedule 3 of the 1970 Act. Compliance with the calling up notice would be payment of the sum demanded by the notice within the period of two months. The defender did not dispute in the present case that the notice had not been complied with. The defender's challenge to the competency of the action was misconceived. Properly construed the term "default" in the context of the pre-action requirements did not have the same meaning as default as defined in standard condition 9.

[23] Addressing standard condition 9 the defender's solicitor noted that three circumstances were identified which would constitute default. Firstly, a calling up notice had been served and not complied with, which was the basis of the pursuer's action in the present case. Secondly, a failure to comply with any other requirement arising out of the security; it having settled by the Supreme Court that this meant some non-monetary failure such as for example a failure to insure the property or perhaps a failure to maintain the property in a good state of repair. Thirdly, the proprietors of the security subjects became insolvent. In any of those situations the debtor was deemed to be in default and in consequence the creditor had certain remedies available to them in terms of sections 20 through to 24 of the 1970 Act. The remedies, resorted to in practice, were concerned with entering into possession with a view to selling the property. Standard condition 9 was uncontroversial it set out three situations where the debtor was deemed to be in default.

[24] Mr McEntegart next drew my attention to section 24A, a provision introduced by the 2010 Act. The pre-action requirements were set out in subsections (2) - (6). For present purposes it was subsection (2) which was the source of controversy. Section 24A required to be read in conjunction with the 2010 Order, which had been introduced by the Scottish Ministers under subsection (8). Paragraph 2 (2) had set out in greater detail what was required of the creditor. It was not contended by the defender that the information required had not been provided. The contention was that it had not been provided at the requisite time and in that connection Mr McEntegart referred me to paragraph 2 (4). It was the status of the debtor as having entered into default, which triggered the requirement to provide information. For the defender's challenge to competency to be sustained it would be necessary to interpret the term "default", where it appeared in section 24A and paragraph 2 (2), in a manner consistent with the definition of the term contained in standard condition 9. The defender could only succeed with her argument if the meaning of "default" was confined to one of the three situations described in that standard condition.

[25] It was Mr McEntegart submitted necessary to look at the context which had existed when the pre-action requirements were introduced and also to consider what the pre-action requirements were intended to achieve. Against that background "default" acquired a different meaning from the definitions provided in standard condition 9. It did not follow that when the Scottish Government were introducing the pre-action requirements they intend that the term should be interpreted so as to be the same as in the standard condition. In support of that proposition he submitted that the bill eventually passed as the 2010 Act had been introduced into the Scottish Parliament in order to implement the recommendations of the Repossessions Group, which had been set up by Scottish Ministers to consider the adequacy of the legal protections for homeowners in Scotland who might be at risk of repossession and if necessary to make specific recommendations as to ways in which the existing legislation might be strengthened.

[26] The bill had been introduced at a time when the accepted practice had been for creditors to proceed with repossession actions in terms of section 24 of the 1970 Act on the basis of mortgage arrears without relying upon prior service of a calling up notice. For decades the practice of creditors in Scotland had been to seek to enforce their rights under section 24 on default in the sense of the non-payment of mortgage arrears. In doing so, according to the Supreme Court, they had proceeded under the erroneous assumption that standard condition 9 (1) (b) made that possible. At the time that the bill had been produced this had been the legal context in which the market had been operating. It had also been accepted by the Scottish Parliament that the approach of acting under section 24 without first resorting to a calling up notice was a remedy adopted by the majority of lenders seeking to enforce their rights to possession of property. That could be seen in the final report of the Repossession Group.

[27] At this point I was referred to paragraphs 6.2 to 6.4, which are in the following terms:

"Present Situation

Conveyancing and Feudal Reform (Scotland) Act 1970

6.2 In the event of a borrower's failure to make the necessary repayments or to comply with any other term under a standard security, the creditor (lender) is entitled to seek to repossess and sell the property. The main remedies available to the lender following default are to proceed by way of a calling-up notice under s.19 of the 1970 Act; to proceed by way of a notice of default under s.2 I of the 1970 Act; or to apply to the sheriff court under s.24 of the 1970 Act.

6.3 It is understood that in the vast majority of cases affecting residential property, in which the borrower is still in occupation of the property, proceedings are raised under section 24 of the 1970 Act.

Section 24 Application: Application to Court for Remedies on Default

6.4 Where a debtor (borrower) is in default, s.24 of the 1970 Act permits the creditor (lender) to apply to the court for a warrant to exercise the power of sale. Prior to the introduction of the 2001 Act, there was no procedure giving a court discretion to refuse an application in terms of s.24 where the court was satisfied that the creditor was entitled to the remedy or remedies sought; that is, that the debtor was indeed in default."

[28] The committees' understanding of the situation was, Mr McEntegart submitted, implicit in the terms of paragraph 6.3; it was that the creditor proceeding in terms of section 24 did not require in the first instance to serve a calling up notice because the existence of that requirement only emerged subsequently when the Supreme Court gave its decision in the Wilson case on 24 November 2010. Upon the basis of the Repossession Group's final report, the defender's solicitor argued that the bill for the 2010 Act had been presented to the Scottish Parliament in the context of a legal framework which involved actions being raised under section 24 and with the intention of offering protection to homeowners in order to ensure that creditors did not litigate until the point where it had become absolutely necessary. It was apparent from consideration of the report and of the bill as it had passed through the Scottish Parliament that the pre-action requirements were introduced to offer such protection, including that of ensuring that creditors would explore alternative options before commencing repossession proceedings.

[29] Section 24A had been introduced into the 1970 Act by the 2010 Act with effect from 30 September 2010. Mr McEntegart submitted that at the time the Act and the 2010 Order were introduced "default" in the context of the payment obligation in relation to a mortgage or secured loan was understood to mean simple non-payment by the borrower. As already observed the pre-action requirements became law before the decision in Wilson and it was apparent that when the Scottish Parliament had debated the bill it had done so so in the context of that understanding. It had not been envisaged nor intended by the Scottish Parliament that creditors would require to await the expiry of a calling up notice before meeting certain aspects of the pre-action requirements, such as the requirement to provide the information stipulated in paragraph 2 of the 2010 Order as soon as reasonably practicable upon the debtor entering into default. The only time specific requirement contained in the 2010 Order was in relation to paragraph 2. There were other requirements which were not time specific as for instance the requirement to provide certain information relative to local authorities and housing requirements.

[30] Mr McEntegart submitted that in interpreting legislation the essential rule was that words should be given their ordinary meaning in the context in which they were used. In support of that he referred me to Pinner v Everett [1969] 3 All ER 257 and in particular to the following passage from the speech of Lord Reid:

"In determining the meaning of any word or phrase in a statute the first question to ask always is what is the natural or ordinary meaning of that word of phrase in its context in the statute? It is only when that meaning leads to some result which cannot reasonably be supposed to have been the intention of the legislature, that it is proper to look for some other possible meaning of the word or phrase. We have been warned again and again that it is wrong and dangerous to proceed by substituting some other words for the words of the statute."

Ms Millar's agent accepted that standard condition 9 did ascribe a meaning to "default", however, it was necessary to interpret the word as it was used in section 24A of the 1970 Act and paragraph 2 of the 2010 Order having regard to its natural and ordinary meaning in its context within these provisions.

[31] The underlying intention of introducing the pre-action requirements was to offer some protection to homeowners who were in difficulties but it was also to ensure that creditors meaningfully engaged with debtors for the purposes of attempting to agree proposals with a view to avoiding the necessity for court proceedings. That had been one of the underlying purposes of the legislation. Adopting the construction proposed by the defender would make the provision of information or attempts to agree proposals at the expiry of a calling up notice perfunctory in nature. At the point when a calling up notice expired the debtor was held to have failed to pay the entirety of the debt. Yet in terms of paragraph 3 of the 2010 Order a requirement was placed upon the creditor to make reasonable attempts to contact the debtor to discuss the default apparently with a view to trying to agree proposals. If section 24A itself were considered it was provided at subsection (3) that the creditor must make reasonable efforts to agree with the debtor proposals in respect of future payments to the creditor under the standard security. Mr McEntegart observed that at the point at which a calling up notice expired there would be no future payments due. The whole amount of the debt became due when the calling up notice was served and it was the expiry of the two-month notice which would give rise to the creditor's rights under section 24. If the pursuer's construction were correct then it would not be possible to comply with the provisions of subsection (3).

[32] The first pursuer's solicitor further submitted that upon expiry of a calling up notice there would be no payments due under the standard security; payment of the whole sum secured having fallen due. While the payment was still secured by the security it could not be said that there was any further payment which fell due to be paid by this particular debtor. That was so, because, if the defender's interpretation was adopted, the debtor had failed to pay the total sum outstanding prior to the coming into being of an obligation to engage with the pre-action requirements.

[33] Mr McEntegart noted that, if he were labouring under a misapprehension as to the meaning of "default", then so also had been the Scottish Government. In support of that assertion he referred me to the document issued by the Scottish Government "Guidance on Pre-Action Requirements for Creditors". At paragraph 14 under the heading "As soon as is reasonably practicable" it is stated:

"14 Article 2 (4) of the Order requires that the information required to be provided by the creditor by virtue of sections 5B (2) of the 1894 Act and 24A (2) of the 1970 Act be provided to the debtor as soon as is reasonably practicable upon the debtor entering into default. It is expected that this information should be communicated in writing and sent to the debtor's as soon as they enter into default e.g. by falling into arrears."

[34] The guidance made it clear that both by the enactment of the 2010 Act and the making of the 2010 Order there had been an attempt to replicate arrangements which had already existed in England. It was easy to see why that would be the case. If the purpose was to have the creditor engage with the customer in order to avoid litigation, what, Mr McEntegart asked, was the sense in engaging after the calling up notice had expired, at a point in time many months after the debtor had fallen into arrears and when the whole capital sum and interest had been demanded? Was it not apparent that the whole purpose of engaging as soon as reasonably practicable was to do so at the stage at which the account first went into default in the sense of going into arrears; at a point when there might still be scope for rehabilitating the account?

[35] Mr McEntegart submitted that the language of section 24A and of the 2010 Order were consistent with the use of the word "default" in the sense of non-compliance with the payment obligations secured by the standard security. That had been the Scottish Parliament's view as demonstrated by the guidance already referred to.

The pre-action requirements clearly envisaged that the debtor might remedy the default; that could be seen from the requirement upon the creditor to agree proposals in relation to future payments. That was inconsistent with the statutory definition of default as contained in standard condition 9 insofar as that extended to condition 9 (1)c, which dealt with the debtor passing into insolvency. If "default" must be a standard condition 9 default then how did that sit with the pre-action requirements? How could the debtor in that situation remedy the default in the sense of curing an insolvency event? For the defender's position to be correct "default" had to mean default under standard condition 9 in its entirety, not merely default within standard condition 9 (1) (a).

[36] The first pursuer's solicitor submitted that, if the starting point for consideration of the provisions was that the Scottish Parliament must have intended that they be meaningful and not merely perfunctory in nature, then it was necessary to read what was being required of creditors in the light of the underlying intention and the mischief at which the provisions were directed. What Parliament had been seeking to do was to ensure that creditors engage with debtors who were in default. The provisions were unworkable if "default" meant default under standard condition 9. Not necessarily all of them but those relating to the provision of information and those relating to engagement to avoid litigation were.

[37] It would be an absurdity if creditors were directed to engage with customers and to come to arrangements in regard to future payments under a security at a point in time when there are no such further payments, the sums already being outstanding and due. As I understood his submissions Mr McEntegart was suggesting that creditors comply with the requirements would effectively be pursuing a charade, what he described as "a box ticking exercise".

Submissions on Behalf of the Second Pursuer B 3573/11

[38] Mr Foyle adopted Mr McEntegart's submissions in their entirety seeking to make only two further points.

[39] Firstly an interpretation which would in effect encourage creditors to serve a calling up notice at an earlier stage than they would otherwise have done would in terms of the report to the Scottish Parliament be against its intention at the time that it had considered the bill. He sought to support this assertion by reference to the official report of a meeting of the Finance Committee of the Scottish Parliament which took place on 17 November 2009. The bill manager Stephen Sandham had given evidence to the committee. He had been asked the following question by one of the committee members Linda Fabiani:

"What about the potential for generally higher costs for all borrowers as the industry tries to cover any potential losses it might face because of the legislation?"

Mr Sandham had replied:

"That is not at all likely. To some degree, the Bill will implement some mechanisms that are already in place in England through the pre-action protocol. We are effectively just toughening that up in Scotland by making it a legislative requirement, but the Council of Mortgage Lenders as she results that it already goes through that process in England using the protocol, so I find it hard to imagine that there should be any additional cost. Indeed some of the discussion in the evidence that was given to the Local Government and Communities Committee confirmed that that was the view of other stakeholders as well."

[40] Mr Foyle submitted that if calling up notices required to be served prior to any adherence to the pre-action requirements then that would involve additional costs. There would inevitably be an additional cost because the services of solicitors would be required to draft and serve the notices. Regardless of whether there existed a statutory requirement that calling up notices required to be signed by a solicitor, in the second defender 's solicitor's experience, the practice of lenders was always to involve solicitors.

[41] Mr Foyle's second additional point was that, if the terms of the standard security which had been granted by the second defender were considered, it could be seen that the standard conditions contained in schedule 3 to the 1970 Act had been varied by the lender's standard mortgage conditions which were registered in the Books of Council and Session. Those standard conditions included a definition of when a borrower would be taken to be in default. Far from "default" having a sense as defined in the Act the Scottish Parliament would have understood the term to possess whatever meaning the parties had ascribed to it in any given case.

[42] In a brief reply Mr Dailly submitted that the second Mr Foyle's points had been dealt with in the opinion of Lord Hope in Wilson at paragraph [75].

[43] It will be noted that the foregoing record of parties' submissions does not include the reference by them to any authority which might offer guidance as to the proper approach to interpretation of terms deployed both in subordinate legislation and within the act conferring power to make that legislation. Considering it probable that the matter was regulated by the Interpretation Act 1978 upon making avizandum I had regard to section 11 of that statute. In doing so I formed the view that this provision might be determinative of the question raised by the debate. Accordingly I appointed parties to be heard further in the debate.

Further Submissions on Behalf of the Defenders

[44] Mr Dailly submitted that section 11 of the Interpretation Act 1978 was determinative of the interpretation question raised in the debate. This was so because the 2010 Order was made under section 24A of the 1970 Act. It therefore followed that section 11 was engaged. The effect of section 11 was that the expression "default" as used in the 2010 Order must have the same meaning as it is given in the 1970 Act. Standing the decision in the Wilson case the pre-action requirement information would require to be given on or after the expiry of the calling up notices.

[45] Section 11 of the Interpretation Act 1978 did admit of one exception. The rule is to apply "unless the contrary intention appears". In regard to how the exception might apply Mr Dailly referred me to Bennion - "Statutory Interpretation" (fourth edition). At page 486 the learned author states:

"A contrary legislative intention displacing a statutory rule of construction relating to a particular term may be manifested by the enactment which uses the term spelling out, in a way different to the statutory rule, how the term is to be construed.

Example 199.19B The Interpretation Act 1978 s 7 states that, and less the contrary intention appears, service by post of a letter is deemed for the purposes of any Act to be effected by properly addressing, pre-paying and posting the letter. The Court of Appeal accepted that the Interpretation Act 1978 is applied to RSC Ord 10 r 1 (2) [-]. Nevertheless the court held that r 1 (2) displays a 'contrary intention' as respects the term 'properly addressing' in s 7. This is because r 1 (2) describes in detail how a letter should be addressed, namely by putting on it 'the usual or last known address' of the intended recipient."

The treatment of this matter in the current (fifth) edition of Bennion is to be found at page 570 and appears to be in identical terms.

[46] In contrast to the situation existing in Bennion's example, Mr Dailly submitted that the 2010 Order provided no alternative definition of "default" to the technical one provided in the 1970 Act.

Further Submissions on Behalf of the Second Pursuer

[47]Mr Foyle submitted that in considering whether section 11 of the Interpretation Act 1978 had any applicability to the issue at hand it was necessary first of all to ask: was there a definition of the expression "default" contained in either the 1970 Act or the 1894 Act? It was Mr Foyle's contention that neither act contained such a definition. Whilst the Wilson case provided authority for the proposition that were repayment of money was being sought a calling up notice required to be served and thereafter default established under standard condition 9 (1) (a), the act itself did not define "default" so as to limit its meaning to the circumstances described in standard condition 9 (1) (a); indeed that position was actually supported by Wilson.

[48] The second pursuer's solicitor indicated that his further submissions fell into four chapters: (firstly) was "default" a defined term under the 1970 Act? (secondly) in so far as the term was defined did the provisions of section 24A adopt that definition or did it point to a wider definition? (thirdly) if there was a definition of "default" was that term capable of alteration by contract? and (fourthly) was there a definition of "default" contained in the 1894 Act.

[49] The starting point for consideration of the 1970 Act was section 53, the interpretation section. It contained a number of definitions for terms used within the act but no such definition for "default"; that was worthy of comment. In response to a question from the court Mr Foyle asserted that neither was the term defined in the standard conditions. The word was used in several places within the Act. It first appeared in section 19 (1). That subsection did not contain a definition of "default", rather it was a description of the steps which required to be taken where the creditor required payment of money covered by the security. Whilst the subsection referred to powers, which the creditor "- may appropriately exercise on default of the debtor within the meaning of standard condition 9 (1) (a) -", the language used did not restrict the sense of the term to that single meaning. The subsection merely provided that if certain powers were to be exercised standard condition 9 (1) (a) required to be triggered.

[50] At this point I posed the question: was the subject matter of the present actions not the exercise of the powers referred to in section 19 (1)? Mr Foyle's response was to agree, however, he submitted that if one were looking for a definition of default for the purposes of the pre-action requirements then it was possible to consider default occurring at an earlier stage. Certain of the Pre-action requirements required to be met as soon as practicable upon default. The order did not state "default within the meaning of 9 (1) (a)". It came down to the question of whether there could be a default in a wider sense before there occurred "default within the meaning of the standard condition. Lord Rodger's decision in Wilson was entirely consistent with that possibility. Between paragraphs [22] and [23] it could be seen that Lord Rodger contemplated "default" in the sense of failing to comply with a demand as well as in the further sense of subsequently failing to comply with a calling up notice, so as to trigger the creditor's powers of enforcement.

[51] In relation to "default" the phrase "within the meaning of standard condition 9 (1) (a)" was used quite regularly, as it was in relation to 9 (1) (b) or 9 (1) (c); examples were sections 20 and 21. If it was necessary to qualify the word in this way then it was clear that there was no single meaning of "default" for the purposes of the 1970 Act. Default was not a defined term within the act.

[52] Mr Foyle submitted that section 24 (1B) was somewhat undermining of the single definition of "default" argument. The reference was to "- default within the meaning of paragraph (a), (b) or (c) of standard condition 9 (1) -". If there was a single meaning for "default" then it would not have been necessary to use this laborious form when a single word would have sufficed. In the 2010 Order only the simple word itself had been used without qualification.

[53] The second pursuer's solicitor now turned to consideration of standard condition 9 (1). That was not a definition of default but rather a direction to a court dealing with an action for possession that if any of the three sets of circumstances identified were to arise, the debtor shall be held to be in default. There was no statement that the debtor could not be in default in any other manner and a wider definition of "default" was not precluded. The paragraph did not say that the debtor "shall only be in default" if one of the three situations was applicable.

[54] Moving on to the second chapter of his submissions Mr Foyle referred me to section 24A (8) in terms of which the Scottish Ministers had made the 2010 Order and to the preceding subsection (7). The latter provided that in comply with the pre-action requirements the creditor must have regard to any guidance issued by the Scottish Ministers. The Scottish Ministers had produced such guidance. At paragraph 14 it was stated that it was "- expected that [the information which required to be provided] should be communicated in writing and sent to the debtor as soon as they enter into default e.g. by falling into arrears." There was therefore a situation where creditors were being given a mandatory direction through guidance which tells them that "default" means falling into arrears.

[55] The second pursuer's solicitor moved on to the final chapter of his submissions which would in relation to the possibility of a contractual variation. At this point I enquired whether considered that standard condition 9 was capable of variation. Mr Foyle conceded that for the purpose of section 19 it could not be, although additional conditions of default could be inserted they would not sound for the purposes of section 24.

[56] Mr Foyle submitted that it would be consistent with the intention of the Scottish Parliament that there exist as wide a definition as possible in order that the pre-action requirements would kick in at the earliest possible time in order that the parties might engage with a view to agreeing proposals.

[57] It was section 11 (3) of the 1970 Act which had given the creditor power to the standard conditions. There were restrictions upon the right to vary those relating to the powers of sale and foreclosure. Mr Foyle conceded that this probably meant that paragraphs (a), (b) or (c) of standard condition 9 (1) could not be altered since the related to the power of sale but they could be added to, to expand the definition of "default". That appeared to me to completely undermine any argument based on creditors' rights to vary the standard conditions.

[58] Moving on to the final chapter of his submissions the second pursuer's solicitor noted that the pre-action requirements applied not only to the 1970 Act but also to the 1894 Act. There was a proviso to section 5 in regard to the creditor's power to eject the proprietor in possession, in that section did not apply "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." In this context he argued that the Interpretation Act would seem to have no application.

Further Submissions On Behalf Of the First Pursuer

[59] Mr McEntegart adopted Mr Foyle's submissions. He then went on to make certain further submissions. He made it plain that he did not take issue with the proposition that section 11 of the Interpretation Act 1978 might tie the sense of a word used in subordinate legislation to its meaning within the primary legislation. There was no single meaning of the word "default" contained within the 1970 Act. Accordingly the court need not detain itself with the effect of section 11 in the context of the issue before it. The issue which the court required to determine was the meaning of default having regard to the terms of the 1970 Act when read together with the 2010 Order.

[60] At this point in the discussion I enquired of Mr McEntegart whether on the hypothesis that at the very least for the purposes of section 24, 24A etc "default" was clearly defined did he accept that by virtue of section 11 that meaning must carry into the subordinate legislation. He confirmed that he did accept that to be the case and that it followed that he would require to persuade the court that default within the context of section 24 and 24A could carry a wider meaning than was provided within standard condition 9 (1). In regard to the possibility of a wider meaning he referred to the submissions which he had made upon the previous occasion concerning intention of the Scottish Parliament. As I understood his position, it was that, having regard to the purpose of the amendment introduced by the 2010 Act, "default" as it is used in section 24 (1B) has a different meaning from that which the word takes on when it is used in for example section 24 (7), section 24 (9) (b) or section 24A. The clear intention of the Scottish Parliament had been to align "default" with nonperformance of the payment obligations under the contract and not to align it with the meanings provided for in standard condition (9) (1).

[61] For the sake of completeness, he said, Mr McEntegart referred me to section 30 of the 1970 Act. This was an interpretation provision in regard to part two of the act. It contained no actual definition of "default".

[62] Although unrelated to the section 11 matter upon which I had sought further submissions Mr McEntegart turned to consideration of section 24 (7). That replicated provisions which first appeared in the Mortgage Rights (Scotland) Act 2001. That act had been repealed by the 2010 Act but the test which the court was to apply in regard to creditors' applications had been carried over from the previous legislation. If default required to bear the narrow meaning then that would produce an absurdity. For example in relation to (7) (a) how would it be possible to have regard to the nature and reason for the default if there were only one kind of default?

Final Submissions On Behalf Of the Pursuers

[63] It was necessary to focus on the nature of the defenders' competency point which was whether the "pre-action requirements" had been complied with. Those requirements were concerned with what needed to be done before proceedings could be raised in order to enforce the creditor's powers.

[64] Mr Dailly conceded that the position in relation to the 1894 Act was less clear. While section 11 might not be brought to bear directly in relation to the 1894 Act it could not be that "default" for the purposes of the 2010 Order could be something different as between the two Acts.

Discussion

[65] The 2010 Order is made in exercise of the powers conferred by two separate pieces of legislation: section 5B (8) of the 1894 Act and section 24A (8) of the 1970 Act. At paragraph 2 (2) of the order a provision common to the two acts is made in relation to the obligation to provide the debtor with clear information for both the purposes of section 5B (2) of the 1894 Act and section 24A (2) of the 1970 Act. At paragraph 2 (4) it is stated that the information required to be provided to the debtor "by virtue of those [last mentioned] sections must be provided as soon as is reasonably practicable upon the debtor entering into default."

[66] The creditor wishing to comply with paragraph 2 (4) of the 2010 order requires to know what is meant by "default". The word is not defined in the order. Section 11 Of the Interpretation Act 1978 provides as follows:

11 Construction of subordinate legislation Where an Act confers power to make subordinate legislation, expressions used in that legislation have, unless the contrary intention appears, the meaning which they bear in the Act.

[67] In light of that provision the natural place to search for the meaning of "default" would be within the primary legislation. The first difficulty which that approach encounters is to discover that there is no common definition of "default" existing as between section 5B (2) of the 1894 Act and section 24A (2) of the 1970 Act and moreover the expression is used differently within each of these acts. It is therefore necessary to consider the two acts separately.

[68] I find it more convenient to begin with consideration of the 1970 Act. In doing so it is necessary always to have regard to the injunction of Lord Reid, quoted at paragraph [30] above, always in the first instance to enquire as to the ordinary meaning of the word or phrase in its context within the statute.

[69] The obligation to provide the debtor with clear information is one of a number of pre-action requirements set out in section 24A. The section opens with a cross reference to section 24(1C); we are told that the requirements narrated are the pre-action requirements referred to in section 24(1C). Accordingly section 24A is only intelligible if it is read in conjunction with section 24, which governs the application by the creditor to the court for remedies on default. Section 24(1B) makes it plain that the creditor's right to make application to the court is confined to the situation "where the debtor is in default within the meaning of paragraphs (a), (b) or (c) of standard condition 9 (1) -". More than once in section 24 where the word "default" is deployed it is qualified in this same way by reference to the three cases contained in standard condition 9 (1). On other occasions both in section 24 and section 24A the word is used without this express qualification. The first and second pursuers' argue that where the word appears in this way, unaccompanied by any reference to these three categories, "default" bears a wider meaning. Put another way, it is said that within section 24 the word has been used to convey two different senses.

[70] I consider that when section 24 is read as a piece of English prose and it is construed according to the ordinary rules and usages of grammar, syntax and punctuation etc, even where it appears without the express qualification that it is "default" within the meaning of one or more of paragraphs (a), (b) or (c) of standard condition 9 (1), nonetheless the word is intended to bear only one or more of those narrow meanings. A number of matters warrant that conclusion:

The head note to section 24 simply refers to "default". While it may be argued that the function of the head note is merely to give a brief guide to the subject matter, it would be surprising for such a heading to have been adopted in circumstances where the word included within it was intended to signify two distinct meanings.
It would be highly unusual within the confines of any single short piece of functional prose, still less within a single section of an act of Parliament, to find the same word used in order to signify two distinct meanings, without that having been expressly stated to be the case. I was not pointed to any examples of such a thing occurring in any other legislation.
"Default" appears at subsection (7) (a) without being qualified by reference to standard condition 9 in the manner employed in 24 (1), (1B) and (2), however, a reading of section 24 as a whole tends to counter any argument that by virtue of this absence "default" on this occasion is intended to bear a meaning unrelated to the cases contained in standard condition 9. Subsection (7) is introduced by subsection (6). The latter requires the court in considering an application under subsection (1B) to have regard to the matters set out in the following subsection. Subsection (7) (a) refers to "the nature of the reasons for the default". The use of the definite article begs the question: what default? That must relate to a default previously referred to. The reader naturally refers back to subsection (6) and then in turn to subsection (1B) where the question is answered: a creditor may only bring an application for a warrant to exercise the remedies where the debtor is in default within the meaning of paragraphs (a), (b) or (c) of standard condition 9 (1).
Two other examples exist within section 24 of the use of the word "default" appearing without it being expressly qualified by reference to standard condition 9. These occur at subsection (9) (b). The word is defined in (9) (a) by reference to the standard condition and it is abundantly clear that the two further references to "default" are references to the same default as is identified in (9) (a) i.e. the default within the meaning of paragraph (a) or (b) of standard condition 9 (1) upon which the application under subsection (1B) is made.

[71] I turn now to consideration of section 24A where the word "default" also appears three times. The head note reads: "Section 24 (1B): pre-action requirements", which makes it plain that the pre-action requirements set out in the following section relate only to that kind of action. Proceedings may only be brought under section 24 (1B) where the debtor is in default within the meaning of paragraphs (a), (b) or (c) of standard condition 9 (1).

[72] As already observed 24A (1) states that the requirements narrated in subsections (2) to (6) are the pre-action requirements referred to in section 24(1C). Reference back to 24(1C) reveals that the pre-action requirements are a necessary precursor only of applications brought under (1B). I repeat again that proceedings may only be brought under (1B) where the debtor is in default within the meaning of paragraphs (a), (b) or (c) of standard condition 9 (1).

[72] To fully understand its meaning it is necessary to place the word "default" within its context in each of subsections 24A(2) (c), (3) and (4) (b) which are in the following terms:

"(2) (c) any other obligation under the standard security in respect of which the debtor is in default."

"(3) The creditor must make reasonable efforts to agree with the debtors proposals in respect of future payments to the creditor under the standard security and the fulfilment of any other obligation under the standard security in respect of which the debtor is in default."

"(4) The creditor must not make an application under section 24 (1B) of this Act if the debtor is taking steps which are likely to result in -

(a) the payment to the creditor within a reasonable time of any arrears, or the whole amount, due to the creditor under the standard security;

and

(b) fulfilment by the debtor within a reasonable time of any other obligation under the standard security in respect of which the debtor is in default."

Plainly two different kinds of default are envisaged. What sort of default is it that the possible "other default" is in addition to? As a simple matter of grammar it can only be something which has already been referred to. Therefore it can only be the default giving rise to the (1B) application, which, as already noticed can only be default within the meaning of paragraphs (a), (b) or (c) of standard condition 9 (1).

[73] Returning to consideration of the 2010 Order as that relates to section 24A (2) of the 1970 Act, I consider it to be apparent that, where "default" is referred to in paragraph 2 (4), the type of default which is intended is one with the potential to found a section 24 (1B) application. That is so because the purpose of the order is to make further provision in regard to the pre-action requirements. By virtue of 24 (1C), only a creditor contemplating such an application requires to comply with the pre-action requirements. Before such proceedings can be in contemplation there must exist default within the meaning of paragraphs (a), (b) or (c) of standard condition 9 (1).

[74] Unless the contrary intention can be shown, by virtue of section 11 of the Interpretation Act 1978 "default" as it is used in paragraph 2 must bear that same meaning as I have concluded it possesses in the enabling provision section 24A. There is nothing in the express terms of the 2010 Order signifying a contrary intention. Indeed for the reasons set out in the preceding paragraph, I consider that the opposite conclusion is to be drawn.

[75] One possible indicator of a contrary intention might be the guidance issued by the Scottish Ministers in relation to the pre-action requirements. At paragraph 14 it is stated that it is "- expected that [the information which requires to be provided] should be communicated in writing and sent to the debtor as soon as they enter into default e.g. by falling into arrears." In a terms of section 24A (7) of the 1970 Act direction is given to creditors that in "complying with the pre-action requirements [they] must have regard to any guidance issued by the Scottish Ministers." I consider that Mr Foyle goes too far in asserting that by this means creditors were given a mandatory direction which informed them that "default" meant falling into arrears. Creditors are enjoined to do no more than have regard to the guidance.

[76] It cannot be said that the guidance overrides section 11 of the Interpretation Act 1978 or that having had regard to the guidance the creditor is bound to follow it in circumstances where there exist perfectly legitimate and compelling reasons for not doing so; in that the guidance conflicts with the literal meaning of the governing statute and where it is plain that the authors of the guidance along with the majority of the legal profession had misunderstood the import of sections 19 and 24 of the 1970 Act. In relation to that latter point it is instructive to notice the expression of approval, which was given by Lord Rodger in Wilson at paragraph [49], to the observation of the Earl of Halsbury in Hilder v Dexter [1902] AC 474 at page 477 "that the worst person to construe a statute is the person who was responsible for its drafting, since he 'is very much disposed to confuse what he intended to do with the effect of the language which in fact has been employed'".

[77] It might be argued that by their submissions the first and second pursuers establish a contrary intention through a demonstration of the un-workability of the provision of sections 24 and 24A when they are construed literally. I have in mind Mr McEntegart's submissions recorded at paragraphs [35] [36] and [37] above in regard to the requirement to make reasonable efforts to agree proposals set out at paragraph 3 of the 2010 Order. His assertion was that at the point at which a calling up notice has expired no future payments are due to the creditor under the standard security. This he said was so, because the whole amount of the debt becomes due when a calling up notice is served. That proposition appears to proceed on a mistaken assumption that it is only where the creditor requires payment of the entire sum that serving a calling up notice under section 19 (1) of the 1970 Act is competent.

[78] In Wilson both Lord Rodger (paragraphs 38 to 40) and Lord Hope observe that it would be difficult to construe the 1970 Act so as to restrict the scope of section 19 (1) in that fashion. It would appear that the calling up notice procedure is available where the creditor wishes payment of the whole or part of the principal, the payment of the principal by instalments or by the payment of interest or capital. Accordingly it would be open to the creditor to confine the sums, which by means of the calling up notice he requires payment of by the debtor, to the arrears accrued up to the date of issue of the notice. Against the background of the expiry of a calling up notice, which made more limited demands than for payment of the entire debt, it would be difficult to say that the requirement to make reasonable efforts to agree proposals set out in paragraph 3 of the 2010 Order would be pointless or that there might not yet be scope for rehabilitating the account.

[79] Even in circumstances where the expired calling up notice may have demanded payment of the entire debt, I do not accept Mr McEntegart's contention that the narrow interpretation would render the requirements in relation to proposals contained in section 24A (3) and paragraph 3 of the 2010 Order as necessarily productive of some kind of charade. Merely because the creditor has demanded repayment of the entire sum, possibly in the mistaken belief that this is what he requires to do in order to protect his position, that does not mean that the parties are prevented from reaching an agreement that will re-establish the mortgage or that it is wholly unlikely that such an event will occur. A significant minority of cases, where the entire loan has been called up and that step is followed by an application brought under section 24 for remedies on default, settle precisely in that fashion.

[80] I was not persuaded by the proposition, that, once a calling up notice for the entire debt has expired, thereafter there cannot exist any "future payments to the creditor under the standard security" in respect of which the proposals called for by section 24A (3) could be made. I consider that for as long as sums remain secured by the standard security future payments by the debtor to the creditor are comprehended by those words. I find nothing in the terms of the subsection that supports a construction that the "future payments" can only be payments within the repayment terms of the loan as originally envisaged.

[81] Also on the theme of un-workability were Mr McEntegart's observations upon the lack of any congruence between the pre-action requirements and default in the sense of standard condition 9 (1) (c), which relates to the eventuality of the debtor passing into insolvency. His question, as to how the debtor in such a situation might remedy their default, can be answered in a number of ways. If the insolvency has reached the point of sequestration there remains, albeit in the majority of cases a remote one, the possibility of the debtor being in a position to petition for recall. Moreover insolvency might be apparent within the meaning of section 7 of the Bankruptcy (Scotland) Act 1985 ("the 1985 Act), but not yet have reached the point of sequestration and there may be scope for an arrangement with creditors. Even in the situation where there has been a sequestration, which will require to run its course, there may be circumstances where the debtor and his spouse are in a position to and are prepared to meet the mortgage payments to avoid their home being sold and where there is insufficient equity or perhaps none such as would justify the trustee in exercising his power of sale. In such a case compliance with the pre-action requirements might well lead to a meaningful engagement such as would avoid litigation by a creditor to enforce its remedies where there had been default within the meaning of standard condition 9 (1) (c). It should be recalled that after a period of three years from the date of sequestration a debtor's family home which has not been sold or to which the trustee has not made up title etc will re-vest in the debtor by virtue of section 39 of the 1985 Act.

[82] To summarise to this point, upon a literal reading of the 1970 Act the word "default", as it is used throughout sections 24 and 24A, unambiguously possesses the meanings ascribed to it in standard condition 9 (1). Further, by virtue of section 11 of the Interpretation Act 1978, since no contrary intention appears either expressly or impliedly by reason of un-workability, the word as it is used within paragraph 2 (4) of the 2010 Order also bears the same meaning as it does throughout sections 24 and 24A. I turn now to consideration of whether, as urged by the submissions on behalf of the first and second pursuers, notwithstanding that the word possesses a clear grammatical meaning, it is appropriate to use a purposive construction to look for some other possible interpretation of the word "default".

[83] I am content to accept Mr McEntegart's formulation of the legislative intent underlying section 24 (as amended) and 24A in relation to the pre-action requirements; to offer some protection to homeowners in difficulties and to ensure that creditors meaningfully engage with debtors for the purpose of attempting to agree proposals with a view to avoiding the necessity for court proceedings. It is when I come to consider whether those purposes are in some way defeated by the application of what I have identified as the literal meaning of the legislation that I part company with him. For the reasons identified in paragraphs [77] to [81] above I consider that a literal interpretation produces entirely workable arrangements.

[84] Regardless of whether those responsible for managing the bill which gave rise to the 2010 Act operated under a misunderstanding as to whether non-payment constituted a default for the purposes of section 19 of the 1970 Act, now that the position has been clarified, it appears to me that the required information will actually be sent to debtors at a time when, given the recent expiry of the calling up notice, they might be more inclined to pay that information some serious regard. At that point the debtor should be in no doubt that the creditor may apply to the Sheriff court for warrant to repossess and to sell the property. That level of understanding on the part of the debtor might be less likely to exist if, in accordance with the pursuers' interpretation, the default which triggers the requirement to provide information, need be no more than one month of arrears. The possibility must exist that there will be debtors with a tendency to pass in and out of an arrears position on a regular basis. One corollary of that situation might be that such persons would receive a regular stream of correspondence providing the required information. Such a volume of similar correspondence might be expected to be ignored. It might also be expensive for creditors.

[85] I did not find Mr Foyle's argument in relation increased expense associated with service of calling up notices to be particularly persuasive. If serving a calling up notice involves lenders in additional expense then that expense will have been occasioned through the clarification provided by the Wilson case and not because of the 2010 Order. Following that decision of the Supreme Court the prudent creditor will, I imagine, be serving a calling up notice as soon as litigation becomes a serious possibility and that would have been the position even if the 2010 Act had never been passed.

[86] The principal source of additional expense identified by Mr Foyle was the involvement of solicitors in the issuing of calling up notices. It may be the practice of lenders to involve solicitors, however, as I read the form of calling up notice, Form A as set out in schedule 6 to the 1970 Act, there is no requirement for it to be prepared or signed by a solicitor. It is not obvious to me why the involvement of a solicitor should be should be thought to be expedient. There is no greater complexity attaching to the form than for example to a default notice issued in terms of the Consumer Credit Act. The latter are generally always issued internally by finance company personnel. I notice that the calling up notice issued by the second pursuers appears to have been prepared by a paralegal.

[87] For the foregoing reasons I consider that the literal meaning of the word "default" which I have drawn from the 1970 Act, far from being contrary to the purpose of the legislator, is entirely consistent with its intention as identified in the submissions for the pursuers.

[88] I turn now to consideration of section 5B (8) of the 1894 Act. It is in more or less identical terms to section 24A of the 1970 Act; the differences relating to the cross references, which are to section 5 of the 1894 Act. The relationship between section 5 and section 5A is, save for one important particular, identical to that which I have identified as existing between sections 24 and 24A of the 1970 Act; section 5A is only intelligible if it is read in conjunction with section 5 and it is to that latter section that regard must be had in order to discover the sense attaching to the word "default" where it appears both in the linked sections and where it is utilised in paragraph 2 of the 2010 Order as that relates to section 5B (2) of the 1894 Act. The difference which I have alluded to as existing between these parallel provisions within the two acts relates to the different meanings given to "default" within each act. Section 5 (1) of the 1894 Act recognises two cases of default: "default in the punctual payment of the interest due under the security" and "[default] in due payment of the principal after formal requisition."

[89] At first blush it appeared to me that there was substance in Mr Dailly's concluding submission that commonsense dictated that "default" for the purposes of the 2010 Order could not mean something different as between the two acts. On reflection that appears to me to be mistaken. The 2010 Act merely set out to place restrictions upon the powers conferred upon creditors under these separate pieces of legislation, however, it left in place the two distinct sets of remedies: power to eject a proprietor in personal occupation on the one hand and on the other hand the power to sell the security subjects etc. In each case, subject to the new restrictions, the separate qualifications for exercise of the creditor's remedies under each act remain unaltered. In other words default continues to possess separate meanings under each act. It therefore follows that in relation to default in the punctual payment of interest an action might be brought by creditor who has not served a calling up notice provided he meets the pre-action requirements and in particular the requirement to provide information about the default as soon as is reasonably practicable upon the failure to pay interest having occurred. Standing that a calling up notice would be required before the creditor could exercise the power of sale under the security it is difficult to figure any practical purpose in such an action, however, some might exist.

Decision

[90] The pursuers in both actions each rely upon the provisions of both section 5 of the 1894 Act and section 24 of the 1970 Act. The first pursuer makes no reference to default in the punctual payment of interest, therefore to the extent that it relies upon the 1894 Act, it must rely upon the calling up notice as a formal requisition. The only default averred in the sense provided by section 5 would have occurred upon the expiry of the calling up notice. Since the first pursuer does not offer to prove compliance with the pre-action requirement to provide information at or after the expiry of a calling up notice but rather relies on the provision of information before the calling up notice was even served, then, whether in terms of the 1894 Act or the 1970 Act, the action B 2832/11 is premature and therefore incompetent. Accordingly in the circumstances I have sustained the defender's first plea in law, repelled the first pursuer's pleas, have dismissed the action and have fixed a hearing to determine all questions of expenses.

[91] The position in relation to the action B 3573/11 is slightly different in that the second pursuer avers that on 26 July 2009, the second pursuer sent to the defender a demand for payment of the borrowing. Failure to meet a demand for repayment of the borrowing is not the same thing as default in the punctual payment of interest, however, it might qualify as a formal requisition for the purposes of the 1894 Act. The form 11 C relied upon by the second pursuer might be interpreted as indicating that subsequent to the constitution of this possible ground of action the pre-action requirement to provide information was met. Without further enquiry it cannot therefore be said that the second pursuer's action in so far as it seeks warrant for ejection in terms of section 5 of the 1894 Act is incompetent.

[92] To the extent that the second pursuer relies on the 1970 Act, for the same reasons as apply to the first pursuer in relation to lack of compliance with the requirement to provide information after default was constituted by the expiry of the calling up notice, the action B 3573/11 is also incompetent. In circumstances I have to the extent necessary sustained the defender's first plea in law, repelled the second pursuer's first plea in law plea in law and have accordingly refused craves 1 and 2. I have appointed parties to be heard in relation to further procedure in respect of the second pursuer's remaining plea and to deal with outstanding questions of expenses.