Serving notices under the Mortgage Rights Act

Mark Higgins clarifies whether debtors can avoid repossession simply by refusing to accept a recorded delivery notice

Of all the matters changed by the Mortgage Rights (Scotland) Act 2001, that which has received the most publicity is how notices will be served. In particular, it has been suggested that debtors in arrears can avoid repossession by simply refusing to answer their door to receive a recorded delivery notice and cannot then receive service by way of sheriff officer.

A distinction requires to be made between the service of a calling-up notice, notice of default or court proceedings on the one hand and service of notices to occupiers and explanatory notices to accompany court proceedings on the other. In other words, there is a difference in the law as it applies to the existing forms and procedures to be followed, which have been adjusted by the 2001 Act, and the new forms which have been introduced by the 2001 Act.

Service of forms adjusted by the 2001 Act and of court proceedings

The Conveyancing and Feudal Reform (Scotland) Act 1970 provides that service of a calling-up notice may be made by delivery to the person on whom it is desired to be served or the notice may be sent by registered or recorded delivery post to him at his last known address1. In certain circumstances, service should be made on the Extractor of the Court of Session. Section 21(2) of the 1970 Act provides that the notice of default “… shall be served in the like manner and with the like requirements as to proof of service as a calling-up notice.”

In the case of court proceedings under the 1970 Act, they may be served by the normal rules governing service of writs2. In the case of court proceedings under the Heritable Securities (Scotland) Act 1894, service of the writ again falls to be governed by the standard rules on service3. Although the form of calling-up notice and notice of default are revised by the 2001 Act, none of the rules on service detailed above is changed.

It is therefore clear that service of calling-up notices and notices of default continue to be governed by the 1970 Act and that either recorded delivery or personal service of those notices is entirely competent under section 19(6) of the 1970 Act. Similarly, as regards service of court writs (as opposed to the notices specified to accompany them), there is nothing in the 2001 Act which precludes service by the normal service methods, including by sheriff officer4. It is therefore submitted that it is incorrect to say that personal service is now incompetent generally in repossession actions or, indeed, that there is any change to the existing methods of service of calling-up notices, notices of default or court proceedings.

Service of forms introduced by the 2001 Act

These forms include firstly each of the forms which must be served on the occupier, namely Forms BB & F of Schedule 6 to the 1970 Act and Form 2 of Part 2 of the Schedule to the 2001 Act. Secondly, the forms include the forms which must be served along with court proceedings, namely Form E of Schedule 6 to the 1970 Act and Form 1 of Part 2 of the Schedule to the 2001 Act. There are in fact three arguments as to how service of these notices should be effected, each of which is considered below. Given the confusion which has arisen over this issue, it is worth repeating the relevant statutory provisions in full.

The first argument is based on a literal reading of the new provisions in relation to service, inserted into the 1970 Act by the 2001 Act. Section 24 of the 1970 Act now provides:

“(3) Where the creditor applies to the court under subsection (1) above, he shall…

• serve on the debtor and (where the proprietor is not the debtor) on the proprietor a notice in conformity with Form E of Schedule 6 to this Act, and
• serve on the occupier of the security subjects a notice in conformity with Form F of that Schedule.
• (4) Notices under subsection (3) above shall be sent by recorded delivery letter addressed-
• in the case of a notice under subsection (3)(a), to the debtor or…proprietor…
• in the case of a notice under subsection (3)(b), to ‘The Occupier’…”

The argument goes that as the Act simply requires the notices to be sent by recorded delivery, the creditor does not require to establish receipt by the debtor, whether through the recorded delivery service or otherwise. The creditor fulfils his requirements under the Act when the letter is sent. This argument is supported by Cathie Craigie5 and by the Scottish Executive.

This argument is an attractive proposition on a reading of s24(4) but matters are complicated by the mandatory requirement on the creditor in terms of s24(3) to “serve…a notice”. Nonetheless, it is submitted that the two subsections must be read together. Doing so suggests that the method of the service mentioned in s24(3) is that provided for in s24(4). This leads to the conclusion that a creditor will indeed have complied with his duties if he simply sends the notices in Forms E & F by recorded delivery irrespective of whether actual service results. The same argument appears to hold good in relation to the notice to the occupier which must accompany service of a calling-up notice or notice of default.

The effect of the second argument, if it was successful, would be to make repossession extremely difficult if a debtor did not answer his door to accept recorded delivery packages, or if the debtor or occupier was not present at the subjects for any reason. The nature of the second argument is simply to rebut the premise of the first that sending the explanatory notices which accompany proceedings or the notices to the occupier is sufficient service. If service cannot be effected by recorded delivery, the argument goes, it remains incumbent on the creditor to achieve service. However, as no other method of service is competently provided for in the new provisions, he is unable to comply with his service obligation. In the case of a calling-up notice or notice of default, the legislation expressly provides that if a creditor has failed to comply, the calling-up notice or notice of default are held to be of no effect6. In the case of court proceedings where, for example, Form F has not been properly served on the occupier, the argument would be that the action is premature due to the failure to serve the mandatory notice.

There is support, below, for the view that no other method of service is competent and so the difference between the first and second arguments comes to be whether a creditor has fulfilled his obligations simply by sending the notices whether or not actual service results. The issue cannot be free from doubt but it is submitted that the first argument is to be preferred for the reasons stated above.

The third argument, which has also been advanced by Ms Craigie and the Scottish Executive, is that the difference between the first and second arguments is academic as the Act does not in fact preclude service by other means, as it does not provide that notices may be issued only by recorded delivery post. It is certainly true that the 2001 Act does not expressly exclude service by other means.

The view that service by sheriff officers remains competent has received some support from commentators on the Act. Indeed, it appears that the drafters of the legislation envisaged that service might take place in an alternative manner. The new certificate of citation provides that court proceedings may be served by sheriff officer7 and it may be assumed that the Executive proceeded on the basis that the court proceedings would be served at the same time as the explanatory notices in Forms E & F. While that may well have been the state of mind which led to these provisions8, it is difficult to interpret “shall be sent by recorded delivery” as meaning that other methods of service are permitted. It is submitted that there is insufficient ambiguity in the wording which would allow the courts to give creditors latitude in their choice of method of service.

Further, in Govan Housing Society v Kane9, Sheriff Johnston declined to permit service of a notice to quit by any method of service other than those provided for in Ordinary Cause Rule 34.8. It is accordingly submitted that this argument is wrong and that service of the notices to the occupier and to accompany court proceedings is not permitted by sheriff officer10.

Nevertheless, a creditor may take the view that the best option is a ‘belt and braces’ approach where, having sent an unsuccessful recorded delivery notice to the occupier or notice accompanying court proceedings to the debtor or proprietor, the creditor then has the notice served by sheriff officer11.

There are attractions to this approach. The creditor has sent the notices by recorded delivery and so, if the first argument is correct, he has fulfilled his obligations. If it is incorrect, but the third argument is correct, he meets his requirements by service by sheriff officer. If the second argument is correct, he has not validly complied with his obligations but it would have been impossible to do so and he has at least done all he can to try to bring the matter to the attention of the recipient of the notice. Regrettably, the matter may not be as simple as that. If the second argument is correct, then service of the notices has not been made and, despite what the creditor may have tried to do, there may be a fundamental problem with his right to proceed further.

If that was all, there might be no real downside in this approach, other than the additional cost of sheriff officers. However, serving the notices by sheriff officer where the creditor is not entitled to do so may give rise to a claim by the recipient that the creditor has wrongfully instructed sheriff officers to serve a document on him when he has no power to do so. Such service might be argued to be akin to wrongful diligence12 or a breach of Article 8 and Article 1 of the First Protocol to the European Convention on Human Rights.

Practical issues of service
Very often the debtor will be the same person as the occupier and so the difficulty over service of notices on the occupier may be overcome if service is made on the debtor. However, that does not assist in resolving the difficulties in relation to service of explanatory notices, such as Form E, on the debtor himself.

It is undoubtedly the case that the difficulties over these provisions will soon be the subject of court decision. As service of the explanatory notice forms which accompany court proceedings should be served with the service copy court papers, a common occurrence will be that the creditor has both the form and the service copy court papers returned to him together where the recorded delivery attempt has been unsuccessful.

Standing the views expressed above, the appropriate course for the creditor to adopt in these circumstances is to remove the explanatory notice form from the package and thereafter have the service copy court papers served by sheriff officers, counter-intuitive as that at first may seem. The alternative, in terms of the third argument, is to have all the papers served by sheriff officers. Even if the explanatory notice (such as Form E) is not served by sheriff officers, the defender will still have notice of his right to make an application for a Section 2 Order as the new Form of Citation for such actions13 makes reference to his ability to do so and the procedure therefor.

Notwithstanding the difficulties on service, it may be possible for a creditor to argue that appearance by a debtor or applicant cures any defect in service of the court proceedings14. However, if the defect relates to service of a notice on which the action is based, such as where a calling-up notice has been raised and followed by court proceedings related thereto, appearance in the court action will not remedy the defect.

Conclusion
It is submitted that the creditor fulfils with his obligations in relation to service on the occupier and service of accompanying notices to court proceedings if he sends the notices by recorded delivery, irrespective of whether actual service results. The alternative for a creditor is to instruct sheriff officers to serve these notices. It is difficult to criticise a creditor who so acts or, standing the general confusion and the view of the Scottish Executive that this is valid, a solicitor who advises his client to proceed in this manner. However, such a course may give rise to further problems for the creditor and, it is submitted, does not in fact cure any problems with service.

A rumour was advanced that emergency legislation was being rushed through to remedy the alleged defect but that proved to be unfounded. The Scottish Executive has said that there is no difficulty with the current legislation and that no amendment legislation is being drafted or indeed necessary. Clearly an authoritative ruling will be required before there is any certainty.

Mark Higgins, a partner in Golds, has lectured widely on the 2001 Act to amongst others the Council of Mortgage Lenders. He recently chaired The Mortgage Law Conference 2002 organised by Central Law Training. He is the author of Scottish Repossessions, to be published by W Green in May 2002.