Was the Onesavings Bank decision correct?

For almost half a century, it would seem that a certain elephant has been invisible in the conveyancer’s chambers. Last month’s “Briefings” (Journal, May 2017, 28 at 29) noted the recent sheriff court case of Onesavings Bank plc v Burns [2017] SC BAN 20, a case of considerable concern to conveyancers and, even more so, to supposedly secured lenders. The case merits wider publicity. The problem that gave rise to the case was the practice of certain conveyancers, after the coming into force of the Conveyancing and Feudal Reform (Scotland) Act 1970, in continuing to use the age-old form of words to constitute a heritable security rather than the form of words seemingly prescribed by that Act.

The Onesavings case was a summary application in which the pursuers sought repossession of the defenders’ dwellinghouse. The pursuers claimed title to sue by reason of their being the creditors in a duly recorded assignation of a standard security in their favour. The defenders contended that the pursuers had no title to sue because the wording essential to the validity of that assignation did not conform to the wording laid down by s 14 of and relative fourth schedule to the 1970 Act, inasmuch as the assignation did not specify the sum due under the standard security at the time of the assignation. The assignation in question incorporated the style probably most widely used by conveyancers prior to the coming into force of the Act, that is to say, it referred to “all sums now due” without specifying these. The sheriff decided that the assignation did not give the pursuers as creditors a real right but merely a personal right.

A potentially ambiguous feature of s 14(1) states that any duly recorded standard security “may be” (emphasis added) assigned “in conformity with” the appropriate form of words set out in the fourth schedule. The pursuers argued that the terms of s 14(1) are merely permissive and not mandatory. Surprisingly, the sheriff in his judgment states that the pursuers “may be right” in saying “that s 14(1) of the 1970 Act is permissive”.

It is well established in our law, as in most legal systems, that, in the interpretation of a statute, the word “may” can be either permissive or mandatory, depending on its context. Of course, the importance of this is that, if a correct interpretation of the word “may” in s 14(1) is that it is merely permissive, the relevant styles provided in the fourth schedule do not have to be adhered to. It is unfortunate that the 1970 Act has a predilection for the, admittedly shorter, phrase “in conformity with”, rather than the, admittedly longer, traditional and more helpful phrase so common in our older conveyancing statutes, namely, “in or as nearly as may be in the form set forth in”.

There is indeed much to be said in favour of a permissive interpretation in the case of s 14(1) because, amongst other things, the statute imposes no invalidation for non-adherence to the styles provided in the fourth schedule. Another problem with the decision in the Onesavings case is that it does not sit comfortably with the incisively explicated decision of Lord Dunpark in the 1977 Court of Session case of Sanderson’s Trustees v Ambion, reported at 1994 SLT 645.

There is another very real problem with the decision in Onesavings. It is well known that s 14 introduced the standard security (subs (1)) to be the only form of heritable security (subs (3)); and that the section made it possible to secure debts contracted after the recording of the standard security (subs (6)); but it appears to have been overlooked that subs (6) goes on to state: “any rule of law which requires that a real burden for money may only be created in respect of a sum specified in the deed of creation shall not apply in relation to a standard security”. Can it be doubted that this applies also to an assignation of a standard security?