Scottish Sheriff Court Decisions

SHERIFFDOM OF GLASGOW AND STRATHKELVIN AT GLASGOW

B3388/11

JUDGMENT OF SHERIFF S. REID, Esquire, Sheriff of Glasgow and Strathkelvin

 

in the cause

FIRSTPLUS FINANCIAL GROUP PLC

PURSUER

against

MR KHALID PERVEZ

DEFENDER

______________________________

Act: Gannon, Solicitor, Optima Legal, Glasgow

Alt: Dailly, Solicitor, Dailly & Co, Glasgow

 

GLASGOW, 22 March 2013. The sheriff, having resumed consideration of the cause, sustains the first plea-in-law for the defender, repels the pursuer's pleas, and dismisses the action; reserves the issue of expenses meantime, and appoints parties to be heard thereon at 9.30am on 12 April 2013.

 

 

NOTE:

[1] In this summary application the pursuer seeks inter alia declarator of the right to enter into possession of, and to sell, residential heritable property at 289 Kingspark Avenue, Rutherglen, Glasgow G73 2AF ("the subjects"), and a warrant summarily to eject the defender and his family from the subjects.

[2] The defender is the owner of the subjects. The pursuer holds a standard security over them.

[3] In craves 1 & 2, the pursuer seeks remedies under the Conveyancing and Feudal Reform (Scotland) Act 1970 ("the 1970 Act"); in crave 3 the pursuer seeks a remedy under the Heritable Securities (Scotland) Act 1894 ("the 1894 Act").

[4] Creditors in securities over residential property are required (by virtue of the 1970 Act, section 24(1C), and the 1894 Act, section 5(3)) to comply with certain "pre-action requirements" before making an application to the court to exercise remedies on default (s.24(1B), 1970 Act) or to eject a debtor from the property (section 5(1), 1894 Act). One of those pre-action requirements is for the creditor to provide certain specified "pre-action information" to the debtor.

[5] The Applications by Creditors (Pre-Action Requirements) (Scotland) Order 2010 (SSI 2010/317) ("the PAR Order 2010") makes "further provision" in relation to those pre-action requirements. Specifically, the PAR Order 2010 states that the pre-action information that requires to be given to a debtor by a creditor "must be provided as soon as is reasonably practicable upon the debtor entering into default".

[6] The principal issue before me is a narrow one, namely whether the pursuer has complied with the pre-action requirements contained within the PAR Order 2010, specifically whether the required pre-action information has been provided timeously.

 

Procedural history

[7] The action was warranted on 6 October 2011, served on 13 October 2011, and first called on 25 November 2011.

[8] On 16 March 2012, after sundry procedure, the action was sisted pending the outcome of a then subsisting appeal to the Inner House of the Court of Session against the decision of Sheriff A.F. Deutsch in Northern Rock (Asset Management) plc v Millar (28 February 2011, Glasgow Sheriff Court, unreported). I am told that the appeal in the Millar case was abandoned in September 2012. On 1 November 2012, the sist was recalled.

[9] On 4 February 2013, the action called before me at a hearing in the nature of a debate. The hearing proceeded by way of submissions only on the defender's first plea-in law (as inserted by amendment at the bar). No evidence was heard.

 

The pleadings

[10] The summary application bears to have been presented under section 24 of the 1970 Act.

[11] The pursuer seeks three principal remedies: (i) warrant to enter into possession of the subjects and to sell them (Crave 1); (ii) declarator of the right to enter into possession of, and to sell, the subjects; to receive and recover rents; and to exercise all powers competent to a heritable creditor in lawful possession of the subjects (Crave 2); and (iii) warrant summarily to eject the defender and his family, dependents, tenants and others from the subjects (Crave 3).

[12] The pursuer avers that the defender has "failed to repay the monthly instalments of sums borrowed as they fall due"; that the pursuer served a calling-up notice on the defender on 19 July 2011 in terms of section 19 of the 1970 Act (item 5/1 of process); that the defender has failed to comply with the terms of the calling-up notice; and that, accordingly, the defender is in default within the meaning of the standard condition 9(1)(a) in Schedule 3 to the 1970 Act (Article 3 of Condescendence).

[13] The pursuer also avers that it has complied with the statutory pre-action requirements. In this respect, reference is made to a Form 11C lodged in process (item 5/3). The pursuer avers, and the Form 11C (paragraph 1, page 2) bears to record, that the pursuer provided the statutory pre-action information to the defender by means of a letter dated 26 May 2011 (a copy of which is lodged as item 5/4 of process). The pursuer avers that it has made reasonable efforts to agree with the defender proposals in respect future payments and the accrued arrears by reference to letters dated between 15 March 2011 and 11 April 2011, and by reference to telephone calls between 15 March 2011 and 25 April 2011 (Article 4 of Condescendence).

[14] The pursuers' pleas-in-law are as follows:-

"1 The defender being in default in terms of paragraph 9(1)(a) of Schedule 3 of the said 1970 Act, the pursuers are entitled to seek decree as first and second craved in terms of section 20 of the said Act.

 

2 The defender has failed punctually to repay the sum due to the pursuers and being still in occupation of and resident in the said subjects, decree as third craved should be granted in terms of section 5 of the Heritable Securities (Scotland) Act 1894".

 

[15] The pursuer's letter to the defender dated 26 May 2011 (item 5/4 of process), which bears to be a "default notice", states, so far as material:-

"THIS IS A DEFAULT NOTICE SENT BECAUSE YOU HAVE BREACHED THE TERMS OF YOUR AGREEMENT.

 

In respect of the Loan Agreement ('the agreement'), reference number [x] made between [the defender] and [the pursuer],

 

Provision of Agreement breached: Clause 2 requires you to make monthly payments of £863.94 on the 12th day of each month

 

Nature of the breach: failure to make the monthly payment(s) due under the Agreement.

 

Action required to remedy: payment of monthly arrears of £6,595.52 within 14 working days of receipt of this letter....

 

If you do not take the action required by this notice before the date shown, then the further action set out below may be taken against you.

 

Further action: [the pursuer] will serve notice in writing demanding payment of the outstanding balance less any applicable rebate under the terms of the Agreement... If nothing is received, [the pursuer] will bring proceedings against you for the outstanding balance and, if this results in it obtaining payment before the sum would have become due under the Agreement, [the pursuer] will allow any appropriate rebate of charges.

 

These proceedings will include an application for possession of the property of 289 Kingspark Avenue, Rutherglen, Glasgow G73 2AF under the terms of the legal charge (standard security in Scotland) registered in the accordance with the Agreement. [The pursuer] will enforce any possession order granted and seek to sell the property to settle the outstanding balance plus costs....."

 

[16] The pursuer's calling-up notice to the defender (item 5/1 of process) is dated 21 June 2011. It was served on 19 July 2011. The period of notice expired on 20 September 2011. It states, so far as material:-

"TAKE notice that [the pursuer]...requires payment of the principal sum of £92,172.72 with interests thereon at the rate of 11.20 per cent per annum from 27 May 2011...secured by a standard security by you [the defender] over 289 Kingspark Avenue, Rutherglen, Glasgow G73 2AF ('the property') in favour of [the pursuer]...and that failing full payment of the said sum and interest thereon...within two months after the date of service of this demand...[the pursuer] may apply to the sheriff court for warrant to exercise the remedies available to a creditor on default for example to repossess and sell the property..."

 

 

Submissions for the defender

[17] The defender's agent submitted that the action was incompetent et separatim that the pursuer's averments were irrelevant because ex facie of the pleadings the pursuer had failed timeously to provide to the defender the "pre-action information" prescribed by the PAR Order 2010. The defender's agent tendered a detailed written Note of Arguments, for which I am grateful. It can be summarised as follows.

[18] Firstly, the defender's agent submitted that the present action was explicitly founded upon the expiry of a calling-up notice. This meant that the definition of "default" in standard condition 9(1)(a) of Schedule 3 to the 1970 Act required to be applied. In terms of standard condition 9(1)(a), "default" occurred only after expiry of the calling-up notice, where the debtor had failed to comply with that notice. Besides, since, in substance, prior to commencing the present action, the pursuer was intending to require the discharge by the debtor of a "debt" secured by the standard security, under threat of repossession and sale, it followed that the pursuer had no option but to serve a calling-up notice under section 19 of the 1970 Act. The pursuer could not rely upon the separate "default notice" procedure prescribed by section 21 of the 1970 Act (The Royal Bank of Scotland plc v Wilson [2010] UKSC 50).

[19] Secondly, he argued that the word "default" in the PAR Order 2010 must have the same meaning as "default" in the 1970 Act. That was because of the PAR Order 2010 was subject to, and interpreted by reference to, section 11 of the Interpretation Act 1978. The 1978 Act applied to the PAR Order 2010 because the latter was issued or "made under" an Act of the Westminster Parliament (namely, s.24A of the 1970 Act), and not an under an Act of the Scottish Parliament. In terms of the 1978 Act, section 11, where an Act of the Westminster Parliament confers power to make subordinate legislation, expressions used in that legislation have, unless the contrary intention appears, the meaning which they bear in the enabling Westminster Act. Accordingly, he argued, it followed that the 1978 Act, section 11, was engaged, and ascribed to words and expressions in the PAR Order 2010 the same meaning which those words and expressions bear in the enabling 1970 Act. There were no circumstances to indicate that any contrary intention applied.

[20] Thirdly, anticipating the pursuer's submissions, the defender's agent acknowledged that section 24A of the 1970 Act (which first introduced the statutory obligation upon a creditor to provide the pre-action information) was inserted into the 1970 Act by an amendment effected by an Act of the Scottish Parliament, namely the Home Owner and Debtor Protection (Scotland) Act 2010. It was section 24A(8) of the 1970 Act (as inserted by the Home Owner and Debtor Protection (Scotland) Act 2010) that conferred upon the Scottish Ministers power to make "further provision" about the pre-action requirements by way of statutory instrument. He submitted, therefore, that the PAR Order 2010, which then made such "further provision" was properly understood as having been "made under" the 1970 Act (being an Act of the Westminster Parliament), and not under the Home Owner and Debtor Protection (Scotland) Act 2010 (being the Act of the Scottish Parliament that had inserted the enabling provision into the 1970 Act).

[21] That distinction was said to be important because the pursuer's agent would seek to argue that the Interpretation & Legislative Reform (Scotland) Act 2010 ("ILR(S) Act 2010") applied to the PAR Order 2010, and not the Interpretation Act 1978. If that was correct, a different rule of statutory interpretation would apply (namely, the rule which appeared in section 24 of the ILR(S) Act 2010). The defender's agent submitted that the ILR(S) Act 2010 did not apply at all to the interpretation of the PAR Order 2010. The scope and application of the ILR(S) Act 2010 was comprehensively set out in section 1 of that Act. Specifically, the PAR Order 2010 was not a "Scottish Instrument" (as more particularly defined in section 1(4) of the ILR(S) Act 2010) because the 2010 Order was not a so-called "hybrid" instrument, being an instrument that was made under powers contained in both an Act of Parliament and an Act of the Scottish Parliament. Reference was made by the defender's agent to the Explanatory Notes and Policy Memorandum that accompanied the Bill preceding the ILR(S) Act 2010.

[22] To the extent that the sheriff in Accord Mortgages Ltd v Dickson (6 July 2012, Hamilton Sheriff Court, unreported) had reached a different conclusion, I was invited not to follow that decision and, instead, to adopt the reasoning of Sheriff Deutsch in Northern Rock Asset Management plc v Millar; RBS plc v McConnell, supra, and in Northern Rock (Asset Management) plc v Doyle (28 September 2012, Glasgow Sheriff Court, unreported).

[23] Lastly, the defender's agent acknowledged that crave 3 (being a warrant for summary ejection) was sought under section 5 of the 1894 Act. He argued that the pre-action information that required to be provided by virtue of section 5B(2) of the 1894 Act and paragraph 2(4) of the 2010 Order had not been timeously provided.

[24] Again, he submitted that section 11 of the Interpretation Act 1978 applied to the PAR Order 2010; that, applying the rule of statutory interpretation in that section, the word "default" in the context of paragraph 2(4) of the 2010 Order had, for the purposes of considering pre-action information issued under section 5B of the 1894 Act, the same meaning as the word "default" in the 1894 Act, being the enabling statute under which the 2010 Order was made; and that, properly interpreted, under section 5 of the 1894 Act, a debtor was "in default" only after he had failed to comply with a "formal requisition" for payment of the principal sum due to the creditor. In the present action, the pursuer averred that the "formal requisition" comprised a letter dated 26 May 2011 (item 5/4 of process), and that the required pre-action information was contained within the same letter. The defender's agent submitted that the pre-action information required to be provided after the demand, and not with the demand, because logically the default can only occur after the demand is made. Accordingly, again the pre-action requirements in paragraph 2(4) of the 2010 Order had not been satisfied. Therefore, the action was incompetent and should be dismissed.

[25] It should be noted at this juncture that the pursuer's agent explicitly conceded that the earliest "default" should be treated as having occurred as at 26 May 2011, being the date of the "default notice" (item 5/4 of process). He conceded that the reference to the default having taken place on "21 October 2010" (in the second sentence of Article 4 of Condescendence) was a typographical error and that the default should be understood as having taken place on 26 May 2011.

[26] For completeness, I should record that the defender's agent conceded that the letter dated 26 May 2011 constituted a "formal requisition" or demand for the purposes of section 5 of the 1894 Act. He also conceded that the letter contained all of the pre-action information that would otherwise have been required by section 5B of the 1894 Act. However, his short point in submission was that the "thing" that creates the default cannot also be the "thing" that provides the pre-action information. The pre-action information would require to post-date the demand letter of 26 May 2011.

[27] In a similar vein, the defender's agent submitted that the whole other communications referred to in Article 4 of Condescendence (being letters dated between 15 March 2011 and 11 April 2011 and telephone calls between 15 March 2011 and 25 April 2011) were irrelevant, for the purposes of any purported compliance with the pre-action requirements in section 5B of the 1894 Act or section 24A of the 1970 Act, because they all pre-dated the date of the earliest alleged "default" on 26 May 2011.

 

Submissions for the pursuer

[28] For the pursuer, I was invited to repel the defender's first plea-in-law and to fix an evidential hearing restricted to the defender's subsidiary defence, namely, whether it is reasonable to grant decree.

[29] In short, I was invited to adopt the reasoning of Sheriff Bicket in Dickson, supra, and not to follow the reasoning of Sheriff Deutsch in Millar/McConnell and Doyle, supra.

[30] The pursuer's agent argued that the pursuer was founding upon two different kinds of "default", for the purposes of seeking the 1970 Act remedies in craves 1 & 2. Those two "defaults" were, firstly, the failure to comply with a calling-up notice (in terms of Standard Condition 9(1)(a), Schedule 3, 1970 Act); and, secondly, the failure by the defender to make the monthly payments due to the creditor, being a separate failure to comply with "any other requirement arising out of the security" (in terms of Standard Condition 9(1)(b), Schedule 3, 1970 Act).

[31] The pursuer's agent acknowledged that the pursuer's first plea-in-law was explicitly founded upon a default only in terms of paragraph 9(1)(a). No motion was made by the pursuer to amend.

[32] However, reference was made to the first sentence of Article 3 of condescendence in which the pursuer averred that the defender had "failed to repay the monthly instalments of sums borrowed as they fall due". From this he argued that the pursuer was entitled to found the action upon two separate "defaults" for the purposes of the 1970 Act. The mere fact that a calling-up notice was served under section 19 of the 1970 Act on 26 July 2011 did not "wipe out" or supersede the pursuer's entitlement to found upon the earlier "default", comprising the failure to "repay the monthly instalments of sums borrowed as they fall due".

[33] As for the proper interpretation of the word "default" in the PAR Order 2010, the pursuer's agent submitted that the ILR(S) Act 2010 (not the Interpretation Act 1978) applied to the PAR Order 2010 because the latter was a "Scottish instrument" (as defined by section 1(4) of the ILR(S) Act 2010) that was (as he put it) "made under powers created by an Act of the Scottish Parliament". That Act of the Scottish Parliament was said to be the Home Owner and Debtor Protection (Scotland) Act 2010, which had amended the 1970 Act and 1894 Act by inserting, respectively, sections 24A and section 5B into those Westminster statutes. Accordingly, by virtue of section 24 of the ILR(S) Act 2010, the word "default" in the PAR Order 2010 must be taken to have the same meaning as the word "default" in the Home Owner and Debtor Protection (Scotland) Act 2010. The pursuer's agent sought to rely on the "Guidance on Pre-Action Requirements for Creditors" that was issued by the Scottish Government upon the enactment of the Home Owner and Debtor Protection (Scotland) Act 2010. He pointed out that creditors were obliged to take account of such Guidance (by virtue of section 24A of the 1970 Act and section 5B of the 1894 Act). In paragraph 14 of that Guidance, the Scottish Government stated that the pre-action information had to be provided as soon as the debtor enters into default, "for example, by falling into arrears". Accordingly, the default, in the present case, involved the failure of the debtor to meet the monthly payments due (i.e. "falling into arrears"); the creditor was obliged to have regard to that Scottish Government Guidance in complying with the pre-action requirements; and the pre-action information was duly provided as soon as was reasonably practicable upon the debtor falling into arrears. This interpretation was also supported by the underlying policy rationale of the amendments introduced by the Home Owner and Debtor Protection (Scotland) Act 2010, namely, to afford to the debtor extra protection from repossession by requiring the creditor to provide information at the very earliest opportunity, such as upon the occurrence of the debtor falling into arrears. There was, it was said, no sense, and no added protection for the debtor, in waiting for further arrears to accrue before providing the information. The pursuer's agent submitted that this would be the "absurd" result if the defender's approach was followed. Put shortly, he argued that the debtor would be better protected if he received the pre-action information sooner rather than later, specifically if the debtor received the pre-action information as soon as reasonably practicable upon the debtor falling into arrears, rather than waiting for the expiry of a calling-up notice. The decision to serve a calling-up notice in the present case did not "cancel out" the debtor's earlier default nor, indeed, did it "cancel out" the pre-action information provided prior to service of the calling-up notice. I was urged to follow the reasoning of Sheriff Bicket in Dickson, supra.

[34] Lastly, as regards crave 3, the pursuer's agent acknowledged that this remedy was sought under section 5 of the 1894 Act. He argued that the letter dated 26 May 2011 comprised both a demand (or "formal requisition") for payment of the principal debt and a document providing the pre-action information required by section 5B of the 1984 Act. Therefore, he submitted that paragraph 2(4) of the PAR Order 2010 had been complied with.

 

Discussion

[35] In my judgment, the action is incompetent because the pleadings disclose that the pursuer has failed complied with paragraph 2(4) of the Applications by Creditors (Pre-Action Requirements) (Scotland) Order 2010. Specifically, the pleadings disclose that the pursuer has failed to provide to the defender, "as soon as is reasonably practicable upon the [defender] entering into default", the mandatory statutory information required to be provided by virtue of section 24A(2)(b) of the 1970 Act and section 5B(2)(b) of the 1894 Act.

[36] Similarly, the pursuer's averments anent compliance with the statutory pre-action requirements are irrelevant. That is because such "pre-action information" as is averred to have been provided preceded the debtor "entering into default".

[37] Accordingly, I have sustained the first plea-in-law for the defender, repelled the pleas-in-law for the pursuer, and have dismissed the action.

[38] The law relating to the enforcement of standard securities is "a veritable maze" (Conveyancing, Gretton and Reid, para 19.32). At the risk of adding to the complexity, I explain the reasoning for my conclusions as briefly as possible below.

[39] The critical question in the present case is this: when does a debtor enter into default, for the purposes of the PAR Order 2010?

[40] That deceptively simple question is complicated (a) by the fact that there is no definition of "default" in the PAR Order 2010 and (b) by the fact that "default" has various different meanings under the 1970 Act and 1894 Act, to which enactments the PAR Order 2010 refers. I propose to look at each enactment in turn.

 

The 1970 Act :

The remedies available and the meaning of "default"

 

[41] When a debtor under a standard security is "in default", the creditor may exercise various remedies (1970 Act, Section 11, Schedule 3, Standard Condition 10(1)).

[42] Under the 1970 Act, "default" is a term of art (Standard Condition 9, Schedule 3, 1970 Act). A debtor is deemed to be "in default" in any of the following three circumstances: (a) where a calling-up notice in respect of the security has been served and has not been compiled with (Standard Condition 9(1)(a)); (b) where there has been a failure to comply with any other requirement arising out of the security (my emphasis) (Standard Condition 9(1)(b)); and (c) where the proprietor of the security subjects has become insolvent (Standard Condition 9(1)(c)).

[43] Critically, if a creditor "intends to require discharge of the debt" secured by the standard security and, failing that discharge, intends to exercise any power conferred by the security to sell the subjects, the creditor must serve a calling-up notice on the debtor (s.19, 1970 Act; The Royal Bank of Scotland Plc v Wilson & Anr [2010] UKSC 50).

[44] This applies even where the creditor is seeking payment of only part of a sum of money secured by the security. That is because in this context "debt" includes "any obligation due, or which will or may become due, to repay or pay money..." (section 9(8), 1970 Act). Therefore, "debt" includes the whole or any part of the secured obligation (Wilson, supra, per Lord Rodger at paragraph [40]). By extension, if the creditor intends to require discharge of the debt secured by the security (or any part of that debt), under threat of a sale of the security subjects, the creditor cannot proceed, as an alternative, by way of a notice of default under section 20 of the 1970 Act. This was the fundamental ratio of the Wilson decision. It proceeds on the logic that section 19 is mandatory, not permissive, in its terms.

[45] In contrast, where the debtor's default comprises a failure to comply with "any other requirement arising out of the security (i.e. any requirement other than a requirement to discharge the "debt" secured by the standard security, under threat of a sale of the subjects), and if that default is remediable, then the creditor may "call on the debtor... to purge the default" (1970 Act, section 21). The creditor may do so by serving a notice of default upon the debtor in Form B of Schedule 6 (section 21(2), 1970 Act).

[46] In summary, therefore, it may be said (as it was in the defender's submissions) that the calling-up notice procedure (under section 19) must be used for "monetary defaults" and that the notice of default procedure (under section 20) should be used only for "non-monetary defaults".

[47] As a convenient shorthand that proposition is broadly unobjectionable. However, strictly speaking, it is not entirely accurate: the true difference between the two procedures arises from the differing nature of the "requirement" imposed by (or remedy sought by) the creditor. It is true that a calling-up notice will generally require discharge of the full principal sum and interest, but it need not do so. Because of the wide definition of "debt" (in section 9(8) of the 1970 Act) the calling-up notice may require discharge of only part of the secured sum - or it may require performance of an obligation ad factum praestandum in respect of which the security was granted. In that latter sense, the calling-up notice is not, strictly speaking, limited to a "monetary default". Likewise, one can envisage a notice of default (under section 20) being deployed where there has been a failure by the debtor to comply with an obligation to observe title conditions such as "to make due and punctual payment of any...rates, taxes and other public burdens" (Standard Condition 3(a)) or a failure to "to pay any premium due" under an insurance policy for the subjects (Standard Condition 5(c)). These latter two defaults might conceivably be characterised as "monetary defaults", but, in my judgment, since they do not involve the payment of money direct to the creditor that would be an incorrect characterisation. (Where a creditor has stepped in under Standard Condition 7(1) to perform such an obligation then, by virtue of Standard Condition 7(3), the expenditure incurred by the creditor would become part of the "debt" secured by the security and any subsequent requirement by the creditor for the debtor to reimburse the creditor, if made under sanction of a sale of the subjects, would have to be by way of a calling-up notice under section 19, as it would involve a requirement to discharge the secured "debt".)

[48] That technical diversion aside, applying the foregoing propositions to the present case, it is clear that the pursuer (as heritable creditor) has indeed required that the defender (as debtor) discharge secured "debt", under threat of applying to the court for power to sell the subjects. This is evident from the pleadings and related documents incorporated therein.

[49] To the extent that payment of any part of the secured debt is being sought by the creditor, under threat of a sale of the subjects, a calling-up notice must be served by the creditor (section 19, 1970 Act; Wilson, supra). The pursuer has indeed invoked the calling-up procedure under section 19 of the 1970 Act. The calling-up notice requires payment of the "debt", failing discharge of which it explicitly records the pursuer's intention to sell the security subjects.

[50] However, the pursuer also seeks to rely upon a default notice dated 26 May 2011 (item 5/4 of process) as a basis for the remedies now craved. In its terms, that default notice also purportedly requires payment of secured "debt" (being specified arrears), under the explicit threat of an application being made for warrant to sell the subjects. In other words, the default notice is trying to do the same thing as the calling-up notice, namely to require discharge of secured debt, under threat of repossession and sale of the security subjects.

[51] In light of the Supreme Court decision in Wilson, the default notice is inept to achieve that purpose.

[52] The default notice can only be effective if it relates to, and calls for the performance of, "any other requirement arising under the security", being a requirement other than a requirement to discharge any part of the secured debt under threat of sale (s.20(1), 1970 Act; Standard Condition 9(1)(b), Schedule 3, 1970 Act).

[53] Accordingly, the default notice is ex facie invalid and ineffective. Applying the ratio in Wilson, it cannot be founded upon as the basis for seeking the statutory remedies craved by the pursuer.

[54] Therefore to the extent that the action is founded upon the purported default notice dated 26 May 2011, the pursuer's averments are irrelevant. In its terms, the default notice has been deployed in circumstances where it was not competent to do so.

[55] That leaves the calling-up notice. In its terms, that notice bears to have been deployed in circumstances where it was competent to do so. It was not in dispute that the calling-up notice was served on 19 July 2011. The result is that the defender is deemed to be in "default" only upon the expiry of the period of notice in that calling-up notice, the defender having failed to comply with it (Standard Condition 9(1)(a), Schedule 3, 1970 Act). Therefore, for the purposes of the 1970 Act, the defender is deemed to be in default as at 20 September 2011.

[56] I shall pause at this juncture, and turn to consider the remedy sought by the pursuer, and the meaning of "default", under the 1894 Act.

 

The 1894 Act :

The remedy available and the meaning of "default"

[57] The 1970 Act is not a definitive code of the law regulating the operation or enforcement of standard securities. (See sections 20(1) & 32 of the 1970 Act which preserve other rights and remedies.) Importantly, the 1970 Act makes no provision for the grant of a warrant for summary ejection of a proprietor in personal possession of the subjects.

[58] Instead, section 5 of the 1894 Act regulates the circumstances in which such a warrant can be obtained. In short, a creditor may take proceedings for a warrant for summary ejection only where the 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".

[59] The 1894 Act does not expressly define "default". However, it is plain from the express terms of section 5 of the 1894 Act that the "default" envisaged by that section can only occur "after formal requisition" of the principal (my emphasis). Logically, therefore, the "default" and the demand for payment cannot be simultaneous. Again, this was confirmed that the Supreme Court in Wilson:-

"The reference to default in payment 'after' requisition in section 5 makes it clear that the requisition must come first. The default occurs if, and only if, the demand that it sets out is not complied with" (per Lord Hope at paragraph 63).

 

[60] It remains a moot point whether a "formal requisition" is required as a prerequisite of a "default" in the payment of interest due under the security, as opposed to payment of the principal sum (See Wilson, supra, at paragraph [31] per Lord Rodger). In the present case, neither the pleadings nor the default notice specifies whether the sum demanded in the default notice comprises the principal sum only, or interest only, or principal and interest. In his submissions, the pursuer's agent stated that he assumed it comprised principal and interest. In any event, as occurred in Wilson (see paragraphs [30] & [31], per Lord Rodger), since the pursuer is not offering to prove that the sum demanded comprises interest only, I proceed on the basis that it comprises the principal sum (at least in part) and that, therefore, a "formal requisition" was required as a prerequisite to establishing the "default" under the proviso to section 5 of the 1894 Act. [61] If I had been required to decide the issue, I would have concluded that a formal requisition was also required as a prerequisite to establishing default in the payment of interest only. That interpretation is consistent both with basic fairness to the debtor and with the underlying rationale of section 5 which is to put the proprietor on notice, before summary proceedings for repossession are brought against him, that the indebtedness (whether it be of principal or interest or both) is due for payment and that, in the event of non-payment by a given date, the creditor may take proceedings against him for a warrant for summary ejection. In so interpreting the section, I attach little significance to the presence of the comma in the proviso to section 5; and interpret the words "after formal requisition" as applying to both "the punctual payment of interest" and the "due payment of the principal".

[62] In the present case, the pursuer submits, and the defender concedes, that the letter dated 26 May 2011 (item 5/4 of process) is the "formal requisition" for the purposes of section 5 of the 1894 Act.

[63] That still leaves open the question as to when exactly the defender is in "default", for the purposes of section 5 of the 1894 Act. The pursuer does not aver how that letter dated 26 May 2011 was intimated to the defender, or when it was received.

 

[64] It is clear that, for the purposes of section 5 of the 1894 Act, "default" can occur only at some point after the "formal requisition" is made (see paragraph [59], above). There must be some lapse of time after the demand is made, albeit very short, during which the defender (as the proprietor in personal occupation) is given the opportunity to comply with the demand and to make "due payment" of the principal, and thereby avoid being in default. It is only if he fails to so comply with the demand that the proprietor has "made default" in terms of section 5.

[65] In the context of this action, I do not require to decide precisely how much time has to elapse, after the making of a demand, before a proprietor in personal occupation is deemed to have "made default" in terms of section 5 of the 1894 Act. Instead, it is sufficient for me to conclude that, for the purposes of section 5 of the 1894 Act, the defender's "default" arose at some point after (albeit it may have been very shortly after) receipt of the pursuer's letter dated 26 May 2011.

[66] That is as much as I require to determine because the critical point, for the purposes of this case, is that the demand (or "formal requisition") under the 1894 Act and the "default" cannot be simultaneous: the former necessarily precedes the latter, if only by a very short period. This is of importance when I come to consider whether the pre-action requirements (which involve the provision of information "as soon as is reasonably practicable upon the debtor entering default") have been satisfied.

[67] If I had required to go further, I would have inclined to the view that, for the purposes of section 5 of the 1894 Act, the proprietor in personal occupation (being a deemed "occupant without title") must have the money ready to make the necessary payment on demand and is entitled to no more than the minimum time necessary to effect the payment by recognised modern banking techniques. That time is likely to be very short - probably no more than one hour in commercial cases (Bank of Baroda v Panessar [1987] Ch. 335; Sheppard & Cooper Ltd v TSB Bank plc [1996] All ER 654), perhaps no more than a few clear banking days in non-commercial cases - being, in any event, no more than is necessary, in ordinary course, for the mechanics of a monetary transfer to be instructed and effected through recognised modern banking techniques.

[68] That approach is referred to as the so-called "mechanics of payment" test in English law. In contrast, some jurisdictions require that a debtor should be entitled to a "reasonable time" to make payment following the issue of the demand. I understand that English law has rejected the "reasonable time" approach because circumstances bearing upon the question of reasonableness may vary markedly from case to case, and from debtor to debtor, for reasons that the creditor may not know and may lack the means of knowing. In the context of the proper interpretation of section 5 of the 1894 Act, it seems to me that the "mechanics of payment" test has the attraction of certainty (for both creditor and debtor) and commercial practicality. Besides, given that, in cases such this, a creditor will also be under a statutory obligation to provide certain pre-action information "as soon as is reasonably practicable" upon the debtor entering into default, the "reasonable time" approach is liable to become quite unworkable, as the date from which the information is to be provided would be susceptible to far too much fluctuation, controversy and uncertainty from case to case.

 

 

The Pre-Action Requirements

[69] This brings us to the point in issue in the present case.

[70] Having identified when "default" arises, for the purposes of a calling-up notice under the 1970 Act and for the purposes of a "formal requisition" under the 1894 Act, it is necessary to consider, firstly, whether the concept of "default" in the context of the PAR Order 2010 has the same meaning as in the 1970 Act and/or 1894 Act, or a different meaning entirely; and, secondly, whether the statutory pre-action information prescribed by the 1970 Act , section 24A and the 1894 Act, section 5B has been provided timeously, namely "as soon as is reasonably practicable upon the debtor entering into default"(PAR Order 2010, paragraph 2(4)).

[71] In my judgment, the word "default" in the PAR Order 2010 will, depending upon the circumstances described below, have the same meaning as it bears in the 1970 Act or the 1894 Act. The meaning of the word will depend upon whether the pre-action information in the particular case is being provided by virtue of section 24A(2) of the 1970 or by virtue of section 5B(2) of the 1894 Act, and upon the nature of the alleged "default" that is being founded upon. In other words, the word "default" in the 2010 Order will draw its meaning from, and be interpreted by reference to, the relevant enabling parent statute by virtue of which the 2010 Order is made. Where the relevant enabling parent statute (such as the 1970 Act) contains different definitions of the word "default", the definition to be applied will be determined by the nature of the alleged default that is being relied upon in the action. The PAR Order 2010 does not create an autonomous meaning for the word "default".

[72] I reach this conclusion because the proper interpretation of words and expressions used in the PAR Order 2010 is determined by section 11 of the Interpretation Act 1978. Section 11 of the 1978 Act states:-

"Construction of subordinate legislation

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

 

 

[73] The PAR Order 2010 was made under powers conferred by the 1970 Act and the 1894 Act. This is clear from the preamble to the Order. The preamble states:-

"The Scottish Ministers make the following Order in exercise of the powers conferred by section 5B(8) of the Heritable Securities (Scotland) Act 1894, section 24A(8) of the Conveyancing and Feudal Reform (Scotland) Act 1970 and all other powers enabling them to do so".

 

 

[74] The Interpretation 1978 Act then achieves its intended purpose: the Act defines (or provides a mechanism to define) a number of commonly used terms so that separate definitions do not have to be provided in every new statute, or in each piece of subordinate legislation emanating from an enabling statute.

[75] Section 11 of the Interpretation Act 1978 Act does admit of one exception. The statutory rule in section 11 is to apply "unless the contrary intention appears". In my judgment, there is nothing in the PAR Order 2010, or in the surrounding circumstances, that manifests any contrary legislative intent displacing the normal statutory rule of construction.

[76] Accordingly, in light of my conclusion on the proper interpretation of the PAR Order 2010, it follows that, on the pleadings, the necessary statutory pre-action information has not been provided timeously, in terms of paragraph 2(4) of the Order. In relation to the information that required to be provided by virtue of section 24A of the 1970 Act, that information should have been provided as soon as was reasonably practicable on or after 20 September 2011, being the date upon which the calling-up notice expired and when the defender first entered "default". In the event, according to the pursuer's pleadings, the provision of the pursuer's supposed "pre-action information" all preceded the occurrence of that "default". Likewise, in relation to the information that required to be provided by virtue of section 5B of the 1894 Act, that information should have been provided as soon as was reasonably practicable upon the occurrence of the defender's default shortly after receipt of the "formal requisition" dated 26 May 2011. In the event, according to the pursuer's pleadings, the pursuer's supposed "pre-action information" (which accompanied the formal requisition) preceded the occurrence of the defender's subsequent "default". The statutory requirement to provide the pre-action information timeously being mandatory in nature, it follows that the action is incompetent.

[77] For completeness, and in deference to the careful submissions made to me, I should record my conclusion that the fact that section 24A of the 1970 Act and section 5B of the 1894 Act were inserted into those statutes by amendments introduced by the Home Owner and Debtor Protection (Scotland) Act 2010 is not, in my judgment, of material relevance to the proper interpretation of the PAR Order 2010. Following that legislative amendment those new sections became part of the fabric of the 1970 Act and 1894 Act, respectively. The PAR Order 2010 was issued pursuant to the delegated powers conferred by sections 24A(8) of the 1970 Act and section 5B(8) of the 1894 Act, respectively; and, therefore, the PAR Order 2010 derives its existence and legislative authority from those two enabling parent statutes of the Westminster Parliament. The preceding amending provision of the Act of the Scottish Parliament is of historical relevance only.

[78] Further, the reference in the preamble of the PAR Order 2010 to "all other powers enabling them to do so" refers, in my judgment, to the powers conferred by the Scotland Act 1998 and related legislation constituting and empowering the Scottish Ministers to act in such devolved matters. The phrase does not refer back to purely historic provisions in any statutes that may have amended the 1970 and 1894 Acts.

[79] The pursuers' agent sought to persuade me that the Interpretation Act 1978 did not apply to the PAR Order 2010. He argued that the proper interpretation of the Order was determined by the ILR(S) Act 2010, because, he said, the PAR Order 2010 was a "Scottish instrument made under powers created by an Act of the Scottish Parliament" (my emphasis).

[80] The answer to this argument can be found in section 1(4) of the ILR(S) Act 2010, which defines "Scottish instrument". The ILR(S) Act 2010 applies inter alia to a "Scottish instrument" which is:-

"...made under -

(a) an Act of the Scottish Parliament (whenever passed), or

(b) an Act of the Scottish Parliament and an Act of Parliament (in each case, whenever passed)" (section 1(4), ILR(S) Act 2010)

 

[81] In my judgment, subsection (a) (above) does not apply because the PAR Order 2010 was "made under" the 1970 Act and the 1894 Act, neither of which is an Act of the Scottish Parliament.

[82] Subsection (b) is a more curious provision. It envisages the making of subordinate legislation under a joint or overlapping provision in an Act of the Scottish Parliament and an Act of the Westminster Parliament. In its terms, it also does not apply to the PAR Order 2010 because that Order was "made under" the 1970 Act and the 1894 Act, both of which are Acts of the Westminster Parliament. I draw support for that interpretation from the Explanatory Note to the Bill preceding the ILR(S) Act 2010. This explains that the provision (now forming section 1(4)(b) of the ILR(S) Act 2010) is intended to define a so-called "hybrid" instrument, being an instrument which is made under powers contained both in an Act of Parliament and in an Act of the Scottish Parliament. This was to ensure that the same interpretative provisions applied to the whole of that hybrid instrument. However, the PAR Order 2010 cannot be said to be a hybrid instrument in this sense. The PAR Order 2010 was made "in exercise of the powers conferred by" the 1894 Act and the 1970 Act (per the preamble to the Order), neither of which is an Act of the Scottish Parliament.

[83] Lastly, the pursuer's agent sought to rely on the "Guidance on Pre-Action Requirements for Creditors" that was issued by the Scottish Government following upon the enactment of the Home Owner and Debtor Protection (Scotland) Act 2010 (which Act introduced, by amendment, the pre-action requirements now appearing in the 1970 Act and 1894 Act). He submitted that creditors were obliged to take account of such Guidance, by virtue of section 24A of the 1970 Act and section 5B of the 1894 Act. That Guidance (at paragraph 14) explicitly stated that the pre-action information had to be provided as soon as the debtor enters into default "for example, by falling into arrears".

[84] In my judgment, while creditors must "have regard to" any Guidance issued by the Scottish Ministers in this respect, they are not obliged to follow it, still less is the Guidance a binding or definitive statement of the law. If that Guidance was seeking to define "default" for the purposes of the 1970 Act as comprising merely a debtor falling into arrears", it would have been, in my judgment, an incorrect statement of the law. The Guidance cannot take precedence over, or contradict the proper meaning of, primary legislation.

 

Decision

[85] For the foregoing reasons, I have sustained the first plea-in-law for the defender, repelled the pleas-in-law for the pursuer, and dismissed the action. I have appointed parties to be heard on the question of expenses.