Calling-up: the questions continue

Royal Bank of Scotland v Jamieson [2019] SAC (Civ) 29 (12 July 2019) is the latest in a line of cases concerning the calling-up of residential standard securities. Whilst worthy of comment in its own right, it is also timely in light of the forthcoming Scottish Law Commission discussion paper on enforcement. This briefing looks at where the law now appears to stand.

Prior to 2010, a secured lender seeking to obtain an order for possession of a property needed only to demand full payment of the mortgage loan, and could then proceed immediately to raise court proceedings on grounds of “default”. There was no defence to those proceedings.

In 2010 two things happened: the Home Owner & Debtor Protection (Scotland) Act 2010 came into force, introducing pre-action requirements (PARs) into the law of Scotland. In addition, the Supreme Court ruled that an action for possession of a property following a monetary default would be incompetent without service of a calling-up notice.

The procedure for serving such a notice is set out in statute and involves recorded delivery post, which failing deemed service on the extractor of the Court of Session. This is what the court in Jamieson examined in detail.

Case law doubts

The cumulative effect of these developments was uncertainty and further case law. Amongst the issues which have emerged are:

1. Can you serve a calling-up notice by sheriff officer? The case of Gallagher 2011 SLT (Sh Ct) 203 would suggest not. However, this conflicts with Stevenson 2012 SLT (Sh Ct) 155), which reached the opposite conclusion. The Gallagher approach was conceded in Jamieson, but the court was not referred to Stevenson.
2. The importance of timing: in Millar 2012 SLT (Sh Ct) 58 it was held that aspects of the PARs could only be complied with on expiry of the notice. Any steps taken prior to this did not count towards compliance and action was accordingly incompetent. Again, there is conflicting authority here (see Dickson 2013 Hous LR 2), and uncertainty.
3. When does a lender need to comply with the PARs? The 2010 Act states that the PARs apply to land “used to any extent for residential purposes”. That suggests a wide interpretation. However, the courts have considered this provision a number of times:

• (a) In Edwards 2013 SLT (Sh Ct) 24 it was held that a residential property that was unoccupied was not being used “to any extent for residential purposes” and therefore the PARs did not apply. This was subsequently followed in Fowlie 2013 SLT (Sh Ct) 25 and would appear to make logical sense.
• (b) In Westfoot Investments Ltd 2015 SLT (Sh Ct) 201 the sheriff interpreted the provision by reference to the categories of person whom the Act was intended to protect, and concluded that it could apply only to (a) homeowners whose home was being used as security for a debt; (b) occupiers not entitled to protection under the Housing (Scotland) Acts; and (c) all other entitled residents as defined within the Act. If no one in those categories was resident within the property, the PARs did not apply. This approach was approved by the court in Mirza 2017 SLT (Sh Ct) 105. However, it leaves lenders with a significant risk if they are wrong about who is in occupation of a property and sits awkwardly with the language of the Act.

4. Now we have the most recent question, arising from Jamieson. Namely, when is a calling-up notice validly served? The court in Jamieson held that a lender could only rely on service on the Extractor of the Court of Session if postal service of the notice was physically returned to the lender, or if it was clear that the addressee had gone away or had died. If that is correct, it leads to further questions about the status of an undelivered notice that is not returned. If the notice is not physically returned, could this be valid service that might be relied on to found a writ? That seems undesirable; however the point was not examined in the judgment.

Comment on the Scottish Law Commission’s first discussion paper on heritable securities pre-default (DP No 168) closed on 30 September. It is understood that a second discussion paper in relation to post-default enforcement will follow. It is to be hoped that the uncertainty that has crept into the law since 2010 will be resolved during this process so that both lenders and their customers can have certainty going forward.