The decision of the Inner House of the Court of Session in Swift Advances PLC v James Martin and others (4 September 2015) is another examination of that highly complex area of law – repossessions of residential property.
Background
The defenders had taken out a second mortgage with the pursuers in 2007; in doing so they granted a standard security in favour of the pursuers. The defenders had defaulted on the payments under the loan by 2008 and the pursuers took steps to call up the standard security in early 2012.
The defenders appealed to the Inner House against the decision of a Sheriff and latterly the Sheriff Principal to grant a decree for repossession of the property.
Discussion
Where a lender seeks to repossess a property in Scotland that is used for residential purposes they must comply with the pre-action requirements set out in the relevant legislation. There are several requirements to which a lender must adhere but the grounds of appeal in this case focused on two in particular. These were:
- A lender must make reasonable efforts to agree with the debtor 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; and
- A lender must not make an application to the Court for possession of the property if the debtor is taking steps that are likely to result in 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.
A third ground of appeal maintained that it had not been reasonable for the Sheriff to grant decree for possession.
The defenders argued that the pursuers had failed to meet their obligations to agree proposals for future payments with them. In addition, they argued that the pursuers had failed to properly consider an offer by the defenders' daughter and son-in-law to purchase the property for its market value. Lastly, the defenders said that the Sheriff and the Sheriff Principal had placed too much emphasis on the arrears on the loan account in deciding whether it was reasonable to grant decree.
The pursuers pointed out that the sum due to be paid to them by the defenders, at the time of the appeal hearing, was in excess of £700,000. Furthermore, the first defender was sequestrated and both of them were only receiving pension income with no way to make higher payments.
When the pursuers advanced the mortgage funds the property had been valued at £750,000. According to a surveyor's report obtained by the defenders in 2012 it was worth £350,000. The devaluation was attributed to doubts as to whether there was a proper legal right of access to the property. In any event, the pursuers maintained that they did not have to agree to discharge their security since the offer would result in their suffering a significant loss.
Decision of the Inner House
The judges rejected the appeal.
In their opinion, the pre-action requirement placed on a creditor to make reasonable efforts to agree proposals for future payments or other arrangement with the debtor extended to just that; it did not mean that an agreement had to be reached since the Pursuers had the right to reject any proposals put forward by the Defenders.
Similarly, the sale of the property for the price proposed by the defenders' daughter and son-in-law would not result in full repayment of the loan to the pursuers. This was not a case where the pursuers had commenced repossession proceedings where the whole amount due to them under the standard security was likely to be paid within a reasonable time.
Finally, in reviewing whether the Sheriff had been correct in determining whether or not it was reasonable to grant decree, the judges took the whole circumstances of the case into account and determined that the pursuers complied with the pre-action requirements and given the level of arrears it was reasonable for judgment to be granted.
Comment
The judges noted that while the amendments to this area of law introduced in 2010 can often be perceived as debtor friendly, they were never intended to prevent a creditor from exercising their contractual right to recover the full debt due them.
The law, as it stands, is simply there to prevent such a creditor from acting unreasonably when it becomes necessary to enforce that right.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
