Upsetting the Applecart: Reflections on RBS v Wilson

Posted On: 07 October 2011

Author: Alan A. Summers QC

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UPSETTING THE APPLECART
Reflections on Royal Bank of Scotland v Wilson

by Alan Summers QC

 

Royal Bank of Scotland v Wilson - another case where the Supreme Court has upset the apple-cart. Though Supreme Courts should not fear to upset apple-carts, applecartupsetting is no small thing. The... technical issue at stake was not just any old technical issue, but a vital one: an issue that had been subject to forty years of uniform interpretation, an issue on which land titles beyond count have been settled, and yet all this was overturned with what looks like something close to nonchalance. If it was in fact necessary for the apples of forty years of uniform interpretation to be cast over - as to which views may differ - then the Supreme Court should at least have agonised.

Professor George Gretton Edinburgh Law Review 2011 p 251 

 

Introduction

  1. The decision of the Supreme Court in Royal Bank of Scotland v Wilson (2011 UKSC 66; 2010 S.L.T. 1227) marked the end of a war of attrition between two brothers and the Royal Bank of Scotland. Although David defeated Goliath, as most of us know in the “real world” it is usually Goliath that wins.  In this case however, David won.

      
  2. The brothers had been in partnership together and had obtained lending from the Bank to support their business activities. The business did not prosper and the Bank was left with a substantial debit balance on the business accounts.  Although the Bank could have sued the partnership for payment, that was pointless as the business was insolvent.  The Bank could have sued the brothers as partners and relied on guarantees they had signed or on their obligation as cautioners under the Partnership Act 1890.  Instead they chose to follow the repossession route. The brothers and their wives had borrowed from the Bank many years ago to buy their homes. Although the loans were nearly paid off, the bond in the security contained the usual obligation on the borrowers to repay on demand all sums due whether jointly or severally and in whatever capacity.  The effect of the bond was that if the Bank made a demand for payment which they did not fulfil, the debtors would be in default of their obligations under the security.  And if they were in default they were liable to the remedies set out in the Conveyancing and Feudal Reform (Scotland) Act 1970 part II and its relative schedules.  The effect of the bond was also that the wives were liable for their husbands’ debts.

  3. The husbands argued initially that their liability as guarantors of the partnership debts was not a liability “arising” from the security under standard condition 9(1)(b) but from the guarantees they had signed. Sheriff Craik rejected this argument. The wives for their part argued that they were not liable as cautioners for their husbands’ debts, seeking to rely on Smith v Bank of Scotland; see 2001 S.L.T. (Sh Ct) 2. This argument was also rejected. The wives appealed. Their appeal was heard by the 2nd Division which upheld the Sheriff’s decision. The Inner House’s views are recorded in 2004 S.C. 153. The matter went back for proof before Sheriff Stoddart and representation was conjoined again. At proof the Defenders complained inter alia that section 5 of the Heritable Securities (Scotland) Act 1894 required the Bank to send a “formal requisition” before commencing proceedings to eject and that because the Bank had failed to do so the application should be refused. He upheld this contention. The Bank appealed to the Inner House where the Extra Division upheld the appeal and granted warrant to eject to the Bank (2009 S.L.T. 729). The Wilsons then appealed to the Supreme Court.

  4. The main point to emerge from the appeal was that the Inner House had been wrong to defer to the learning of Professor Halliday in Millward.  Guided by his textbook writings they had come to the view that if a creditor applied to the Court under section 24 for warrant to eject there was no need even in the case of a residential property to demandpayment beforehand by means of a “formal requisition”. The Supreme Court took the view that the plain language of section 19 meant that if the creditor wished repayment of a loan a Calling Up Notice had to be used as prescribed by section 19.  Section 24 had to do with other defaults namely failing to comply with the non-monetary aspects of the security (e.g. maintenance and repair) or insolvency.

  5. The Bank’s main argument was that the 1970 Act had overridden section 5 of the Heritable Securities (Scotland) 1894 Act in the case of applications for warrant under section 24. It was argued section 24 provided an independent remedy which was not contingent on a prior demand such as a section 19 Calling Up Notice. The weakness of that argument however was that it gave no content to 5 of the 1894 Act (see Lord Roger p77 para. 33). It was evident that a formal demand for payment was designed to give prior warning to a debtor that the security subjects were liable to be sold after ejection of the proprietor; it was difficult to accept that such a valuable protection should be removed by implication.

  6. The Supreme Court also held that the Inner House was wrong to equate a Schedule 7 certificate (which the Bank had supplied during the course of proceedings) with a “formal requisition”. Lord Rodger explains why at p 77 (para. 31). The principal problem with the certificate was that it was not a requisition or demand. It was simply a convenient means provided by section 24 by which creditors could certify certain matters and thus obviate the need for proof at the hearing of the application. The pro forma certificate in schedule 7 indicates that its primary purpose was to obviate the need to prove a default under standard condition 9(1)(b).

  7. Another point which seems to have been completely overlooked in the aftermath of Wilson is that even if the Supreme Court had not overruled Millward it was not persuaded that the letter the Bank wrote to the Wilsons threatening them with action if they did not pay their debts, was a “formal requisition” as required by the Heritable Securities (Scotland) Act 1894. The Wilsons would have won on this point alone since formal requisition is a precondition of ejection. The letters were not sent to their wives and did not mention that the Bank was contemplating using its security to repossess and sell their homes. It simply threatened action in an unspecific way.  It is crucial to appreciate that the 1970 Act does not supply ejection as a remedy.  Without the 1894 Act a “proprietor in possession” cannot be removed. It is the case however that if a Calling Up Notice under the 1970 Act is served that it satisfies the need for a “formal requisition”.

    Commentary
  8. The main point to emerge from Royal Bank v Wilson was that monetary defaults according to the wording of the Act as originally enacted, are dealt with by the procedures contained in sections 19 and 20. Non-monetary defaults are dealt with by the Notice of Default procedure in sections 21 to 23. Section 24 is confined to non-monetary defaults since it applies only to defaults 9(1)(b) and 9(1)(c). The critical conclusion of the Supreme Court is that a failure to pay on demand sums due under the Bond in the Security is not to be treated as a 9(1)(b) default where the Bank has issued a demand for payment but has not sent a Calling Up Notice. The reason for this is that section 19 requires a creditor to use a Calling Up Notice where there has been a monetary default

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