Lenders new PAR arguments rejected in NRAM, Santander & Nationwide v. Doyle and 4 others

New legal arguments by Aberdein Considine & Co., solicitors on behalf of three UK lenders have been rejected in a Scottish judgement from Sheriff Deutsch at Glasgow Sheriff Court. The judgment pertains to five separate mortgage repossession actions which were heard together earlier this year, with GLC's Principal Solicitor acting for all five defenders.

The 'Doyle judgment' provides helpful discussion on what lenders need to do to satisfy the 2010 Pre-Action Requirements (PAR) Order, with examples of three cases which failed to meet the 'minimum standard' required under the 2010 Order, and two cases which met the statutory test.

The Pursuers' solicitors unsuccessful challenged the ratio in Northern Rock (Asset Management) Plc v. Millar 2012 SLT (Sh Ct) 58, but had also set forward a number of new legal arguments which had not been considered in Millar. A number of new propositions were advanced, including: that the Interpretation Act 1978 did not apply; 'default' was truly under standard condition 9(1)(b); there should be a flexible time for PAR compliance; and that there was no mandatory requirement to comply with regulation 2 of the 2010 Order. All of these arguments were rejected by the court.

The Pursuers' solicitors were able to show that there had been actual compliance with the PAR in two out of the five cases, and accordingly these were continued to determine further procedure, while three actions were dismissed as incompetent. The full judgment is available here (online PDF).

Aberdein Considine refuse to give copies of pre-action mortgage documents in Scottish repossession cases

Govan Law Centre (GLC) is concerned to note a change in practice by one of the panel firms of solicitors who represent lenders in Scottish mortgage repossession actions. Aberdein Considine and Co., Solicitors have advised us that they will no longer provide copies of formal mortgage correspondence sent to customers before court proceedings were raised. This change in practice will adversely affect many of our clients in future.

We are required to check such correspondence in order to properly advise our clients of their legal rights.  Not all customers retain all such documentation, particularly where they are under financial pressure or have health or other problems. All other lender’s firms in Scotland currently provide defenders' advisors with copies of pre-litigation correspondence when requested, which is often available in electronic form and can be readily provided by e-mail.

GLC is concerned to note that Aberdein Considine and Co., Solicitors will no longer provide us with copies of formal pre-litigation letters send by their clients. The Financial Services Authority's MCOB rules requires authorised firms to deal fairly with any customer who is arrears of his or her mortgage (R13.3.1).  This extends to agents acting on behalf of firms. Firms are also expected to liaise with a customer’s advisor regarding payment or sale shortfalls.  

GLC doesnot believe that the policy approach of Aberdein Considine and Co., is in the interests of lenders' customers and appears to be at odds with the FSA’s Principles of Business (Principle 6).Accordingly, GLC intends to formally take these policy issues up with lenders in the first instance. 

Northern Rock drops appeal as Scottish Government promises law reform for lenders

Northern Rock (Asset Management) plc (NRAM) has asked the Court of Session to dismiss its appeal against the decision of Sheriff Deutsch in the NRAM plc v. Millar GLC test case. NRAM's appeal was dismissed on Friday, 7 September 2012 (the procedural hearing date of the case) with judicial expenses awarded in favour of the defender.

The reason given by NRAM for abandoning its appeal to the Inner House was because it had become aware the Scottish Government was now willing to bring forward law reform to amend its 2010 Pre-Action Requirements Order (PAR) so that 'default' would mean a simple missed mortgage payment. The ruling in Millar meant that key information - and a final last chance to remedy mortgage 'default' - had to be provided on or after the expiry of the calling up notice, generally served before court proceedings were raised.

It is understood* (see update below) the Scottish Government will amend the definition of 'default' in the PAR, so that there will be no need to provide key PAR information prior to proceedings being raised.

GLC's Principal Solicitor, Mike Dailly said: "We believe the Millar judgment was fantastic news for Scottish consumers because it meant they would always get an extra and final chance to avoid court proceedings after a calling-up notice.  Govan Law Centre is dismayed to hear that the Scottish Government will now scrap this final last chance for Scottish homeowners, and in so doing render the Pre-Action Requirements toothless, and in effect a duplication of the FSA's existing equivalent MCOB rule. The Scottish Government should be backing struggling homeowners and not legislating for lenders".

GLC notes that Sheriff Deutsch had eloquently explained the logic of PAR information being sent after the expiry of a calling up notice in his judgement in Millar (at paragraph 84, which is reproduced below).

The first public mention of the Scottish Government legislating for lenders was raised in an article in the industry magazine, the Mortgage Finance Gazette, where Mr Rob Aberdein of Aberdein Considine & Co., Solicitors (a Scottish firm who act for a number of lenders in repossession proceedings in Scotland) said in relation to the NRAM v Millar case:

"Should an appeal not be forthcoming or be unsuccessful then I did meet the Scottish Government at the start of the year on the matter of the impending Glasgow cases decision and have exchanged correspondence with Alex Neil MSP, the cabinet minister for infrastructure and capital investment, on the topic.  Both are supportive of corrective secondary legislation as they believe the decision is not consumer friendly and potentially damaging to their goal of avoiding repossession and resultant homelessness".

GLC is not aware of evidence whatsoever to support the assertion by Mr Aberdein, which he ascribes to the Scottish Government.  We note that lenders have already changed their practice since earlier this year to comply with the legal reasoning in Millar. Further, we note that any proposed law reform cannot be retrospective.

Note
NRAM plc v. Millar &; RBS plc v. McConnell judgment:
[84] Regardless of whether those responsible for managing the bill which gave rise to the 2010 Act operated under a misunderstanding as to whether non-payment constituted a default for the purposes of section 19 of the 1970 Act, now that the position has been clarified, it appears to me that the required information will actually be sent to debtors at a time when, given the recent expiry of the calling up notice, they might be more inclined to pay that information some serious regard. At that point the debtor should be in no doubt that the creditor may apply to the Sheriff court for warrant to repossess and to sell the property. That level of understanding on the part of the debtor might be less likely to exist if, in accordance with the pursuers' interpretation, the default which triggers the requirement to provide information, need be no more than one month of arrears. The possibility must exist that there will be debtors with a tendency to pass in and out of an arrears position on a regular basis. One corollary of that situation might be that such persons would receive a regular stream of correspondence providing the required information. Such a volume of similar correspondence might be expected to be ignored. It might also be expensive for creditors.

* Update from 24 September 2012: Scottish Government confirms it has not made any decision to amend the 2010 Order: link to letter confirming same.

Further hearing in Scottish repossession test cases on pre-action requirements

The court has appointed parties be heard further in the Scottish repossession test cases of RBS plc v. McConnell and NRAM plc v. Millar next week. Sheriff AF Deutsch has given parties an opportunity to be heard on a new point in relation to the Interpretation Act 1978.

Since the Scottish Government's Home Owner and Debtor Protection (Scotland) Act 2010, a lender must now give certain information to a debtor upon entering into 'default' before a repossession action is raised in court. This is known as the 'pre-action requirement' and failure to comply with this requirement can render the court action incompetent.

Many lenders and law firms in Scotland have interpreted 'default' to mean merely a failure to pay sums due under a mortgage, whereas Govan Law Centre has argued that 'default' is a technical term which means the failure to comply with a calling-up notice.

The cases of RBS plc v. McConnell and NRAM plc v. Millar look set to provide clarity on this point. Many repossession actions across Scotland have been continued or sisted (stayed) pending the court's judgment in these cases.

Decision on 'Pre-action Requirements' in Scottish repossession test cases expected February 2012

The judgment of Sheriff Deutsch in the GLC test cases of RBS plc v. McConnell and Northern Rock (Asset Management) plc v. Millar is expected sometime in February 2012.  These cases test the issue of precisely when compliance with the 'Pre-Action Requirements' from the Applications by Creditors (Pre-Action Requirements) (Scotland) Order 2010 (SSI 2010/317) and Home Owner and Debtor Protection (Scotland) Act 2010 needs to occur, in relation to mortgage arrears repossession actions proceeding on a breach of standard condition 9(1)(a), sch 3 of the Conveyancing and Fedual Reform (Scotland) Act 1970, as amended by the 2010 Act.

GLC supports Scottish pre-action legal requirement in eviction cases

GLC supports the Scottish Governent's proposal of a pre-action requirement (PAR) for eviction cases in the social rented sector; although the elephant in the room is why not extend this approach to private sector evictions too?

We believe this approach could significantly reduce the number of tenants evicted due to rent arrears in the social rented sector. A PAR has been suggested in a recent Scottish Government consulation paper. Such an approach would require all social landlords to deal with the problem of arrears effectively at an earlier stage. It would also help ensure that court action was only raised as a last resort.

GLC believes the Housing (Scotland) Act 2001 could be amended to ensure that compliance with a PAR prior to raising an eviction action was necessary in order to ensure that proceedings were competent in the same way that service of a valid notice of proceedings is required at present. Failure on a social landlord’s part to comply with the PAR would therefore be a defence to the action on competency grounds.

GLC believes it is important, from a public policy point of view that social tenants are afforded the same protection as homeowners. The introduction or a PAR would bring the protection of social rented tenants in line with the protection being introduced for homeowners in the Home Owner and Debtor Protection (Scotland) Act 2010.

However, GLC is concerned that the Scottish Government's approach could give rise to unintended consequences, unless appropriate safeguards were put in place.  For example, we are concerned that the PAR could be seen as evidence that it is reasonable to evict in terms of section 16 of the Housing (Scotland) Act 2001. GLC is concerned that social landlords could argue that as they have complied with the PAR, and that as their tenants still had arrears, it would be 'reasonable' to evict. We believe that it is important that full consideration is still given to the requirements of section 16.

Although we hope the introduction of a pre-action requirement will reduce the number of cases raised in court we think care must be taken to ensure that the result is not an automatic assumption that all the cases that end up in court must be ones where nothing can be done to assist the tenant and that eviction will be reasonable in these cases.

We also think it is important that landlords continue to work with the tenant to solve the problem of the arrears, even after court action is raised. Our experience is that once the case has been raised in court some landlords become focused on obtaining a decree and are not as willing to negotiate repayment arrangements with tenants. We are concerned that the pre-action requirement may be seen as landlords as all they are required to do to assist a tenant. Instead we believe it should be seen as a minimum level of assistance that must be given before an action can competently be raised. Landlords should still be encourage to engage with tenants and work towards preventing eviction even after court action has been raised.

GLC's full response, led by Lindsay Paterson, Solicitor, to the Scottish Government's consultation is available online here.