Lenders and solicitors alike were surprised by the decision of the UK Supreme Court in Royal Bank v Wilson on 24 November 2010. The decision overturned what had been almost 40 years of possession procedure and conveyancing practice in Scotland and, coming as it did less than two months after the implementation of the Home Owner and Debtor Protection (Scotland) Act 2010, represented a further unwelcome development for lenders in Scots law. Legally, the decision overruled/overturned two previous decisions of the Inner House of the Court of Session (the Scottish Civil Court of Appeal).
The Court decided in this case that the Bank had not complied with the proper procedures in terms of the legislation because it had not issued Calling Up Notices on the borrowers/customers and had waited two months for these to expire before raising court action and repossessing the property. It ruled that such Calling Up Notices were a necessary precursor to repossession proceedings.
The judgment brought about a flurry of activity in almost all firms in Scotland since it had implications for borrowers (whose properties had been or were being repossessed), purchasers of these properties, as well as lenders (both when instructing firms in possession action or where they were lending to prospective purchasers of such), and the majority of court actions making their way throughout various stages in the court process.
Lenders and lawyers have worked together to review the implications of this decision and to consider what steps had to be taken in light of this.
The most immediate impact was on repossession sales which had to be put on hold whilst the position of the Keeper (Public Registrar) was clarified. Such sales are now being progressed with the backing of indemnity insurance being made available and the Keeper has confirmed that she would accept titles for registration where the calling up procedure has not been followed, albeit with exclusion of indemnity. Purchasers’ solicitors are being asked to consider each case on its own merits and take a view on matters themselves with the indemnity insurance being offered as a form of comfort. Most purchasing agents have been agreeable to proceed with the transactions so these sales are slowly moving forward.
Professor Rennie, a leading authority in Scottish conveyancing matters, also recently published an article endorsing the approach we recommended to our lending clients that title indemnity should adequately protect any risks for purchasers of these repossessed properties. He also agreed that there was very little risk to those people that had already purchased such properties and concluded the sale transactions.
After discussions with lenders across the industry, ongoing possession actions where no court order had been obtained are being dismissed, with fresh proceedings expected to be raised after Calling Up Notices are served and pre action-requirements fulfilled in terms of the Home Owner Protection legislation. In those cases where pre-action requirements result in payment arrangements or other proposals, court actions are not being raised and matters are resolved without the need for further court action so borrowers are in effect given a second chance to resolve matters and avoid repossession.
In cases where the court order had already been obtained but no eviction had been carried out, again such orders were no longer of any practical use (at least without taking excessive legal and reputational risks). The process had to be started again with Calling Up Notices being served and fresh proceedings raised thereafter.
We have seen some opposition from firms acting for the borrowers when seeking dismissal of these actions on the issue of expenses. It is our view that the Bank’s were entitled to raise the actions (the judgment does not change the factual basis which gave rise to the possession actions in the first place, i.e. that the account was in arrears) and also entitled to rely on the long-standing practice of raising actions without the requirement of Calling Up Notices in every case. The recent judgment has overturned the practice so it is for this reason that the action can no longer competently proceed and the Bank is forced to dismiss the action. Most firms appear to accept this view and in a recent case in Airdrie Sheriff Court, Irwin Mitchell successfully persuaded Sheriff Collins of this reasoning.
Khalda Wali, Solicitor