SHERIFFDOM OF SOUTH STRATHCLYDE DUMFRIES AND GALLOWAY

A406/09

	JUDGMENT OF SHERIFF PRINCIPAL B A LOCKHART
	in the cause
	WEBB RESOLUTIONS LIMITED
	Pursuers and Respondents
	against
	DEREK ROBERT GLEN & MISS SUZANNE ELIZABETH McINTOSH
	Defenders and Appellants

Act: Forrester, Solicitor, McClure Naismith, Glasgow

Alt: O'Hanlon, Solicitor, E & W Mains, East Kilbride

HAMILTON: 9 November 2009

The Sheriff Principal, having resumed consideration of the cause, refuses the appeal and adheres to the sheriff's interlocutor of 8 July 2009 complained of; finds the defenders and appellants liable to the pursuers and respondents in the expenses of the appeal; allows an account thereof to be given in and remits same when lodged to the Auditor of Court to tax and to report.

NOTE:

Background to the appeal

1.            This is an action under the Conveyancing and Feudal Reform (Scotland) Act 1970 in which the pursuers and respondents (hereinafter referred to as the respondents) seek warrant to enter into possession as the subjects known as 208 Pine Crescent, East Kilbride, in view of the breach of certain obligations under the standard security. They also seek to have the court ordain the defenders and appellants (hereinafter referred to as the appellants) to vacate the premises under pain of ejection and further seek warrant for the respondents to exercise in relation to the subjects the power of sale and all other powers competent to a creditor in lawful possession of security subjects by virtue of the 1970 Act.

2.            The initial writ was served by sheriff officers on 30 March 2009. No appearance was lodged by or on behalf of the appellants and on 24 April 2009 the sheriff granted decree in absence. A reponing note was lodged on behalf of the appellants and this was heard by the sheriff on 8 July 2009. The sheriff on that date refused the reponing note. This appeal is taken against that decision.

3.            In the reponing note the appellants accept that decree in absence was granted on 24 April 2009 in respect of their failure to enter appearance. They accept that on 20 May 2009 the appellants received a charge for ejection with the date of ejection being 18 June 2009. The solicitor for the appellants was not instructed by them until 1.30 pm on 17 June 2009, the day before the ejection. The reponing note further averred:

"2. The defenders have significant financial problems. They failed to attend to attend to correspondence in the hope that matters would go away although they made payment of the last monthly mortgage payment of £375.56 on 31 May (this was in fact not the case as the direct debit was rejected).

3. The defenders seek to defend the action by lodging a Mortgage Rights Minute application suspending the rights the creditor has under section 2 of the Mortgage Rights (Scotland) Act 2001. The defenders defence of the action includes the fact that the lenders did not assist to date as required in terms of the Act. The pursuers only assistance has been to confirm that they can make payment of the sums due. The first named defender is presently employed but the second named defender has recently been on maternity leave and returned to work on a work part time basis. She has been in receipt of a reduced income during this period of time during which the arrears occurred. The defenders have other difficulties but are meeting with Money Matters to arrange a debt arrangement programme. The first available appointment is 15 July 2009. The defenders seek to enter the action to have the creditor's rights suspended in terms of section 2 of the Mortgage Rights (Scotland) Act 2001 and would wish these rights suspended to enable them to address their financial issues and come to a payment arrangement with the pursuers to enable the full indebtedness to be cleared by arrangement with them over a period of time or alternatively to secure funding from elsewhere to clear the indebtedness. The defenders have made initial enquiries and been referred to a further lender who may be able to assist. In addition they are speaking to family members who may also be able to assist."

4.            In his note the sheriff, having narrated the terms of the reponing note which I have set out above, records that for the respondents it was stated:

"that the repossession action had been served in March of this year and decree had been obtained on 24 April. It was extracted by 11 May and subsequently eviction was fixed for 18 June. The reponing note was warranted on 17 June. I was referred to paragraph 2 of the reponing note and the hopes of the appellants as expressed therein. It was stressed that nothing was said about the reaction to the actual writ, what steps they had or had not taken at that time. The respondents did not accept that any payment had been received in May 2009. The last payment having been made in September 2008 according to their records. It was submitted that the reponing note ought to contain information as to why the initial writ had not been responded to.

The respondents produced information on a sheet which is headed Applications and Hearings which is within the process. The information narrates the number of times efforts were made by the respondents to communicate with the appellants in an attempt to come to some arrangement which would allow matters to be resolved without the respondents taking steps to repossess the property. This runs to some two pages. With the same papers there was lodged a statement of account which discloses a huge number of rejected direct debits including the rejected direct debit payment in May 2009.

As regards paragraph 3 of the note it was stressed that there was no statutory duty on the defenders as referred to but in any event they did attempt to contact the appellants as narrated in the chronology above referred to and the efforts made to help in this particular case.

I took the view that the appellants had taken no steps whatsoever to respond to the initial and writ and offered no explanation for that apart from the hope that matters would simply go away. There was no reason offered as to why they had not reacted at a stage earlier that at which they did. All in all the appellants had done nothing to assist themselves, they had not responded to communications from the respondents and it appeared to me that the steps taking by the lodging of the reponing note was a mere delaying tactic which almost amounted to an abuse of process. For that reason I refused the reponing note."

Submissions for the appellants

5.            Solicitor for the appellants conceded that he was only instructed the day before the eviction. At that time he was advised by his clients that they had a meeting with Money Matters on 15 July 2009. The appellants expressed to him the hope that they could make a payment arrangement with the respondents to allow them to stay in the house or alternatively obtain funding to clear the indebtedness. Solicitor for the appellant had met with the appellants on 10 August 2009 to complete legal aid applications. They did not contact him again until 27 October 2009, which was two days before the appeal hearing. It was only then, for the first time, that they advised him of their meeting with Money Matters on 15 July 2009. The advice had been that they could make an application under the Mortgage to Rent Scheme. It was explained that this was a Government sponsored scheme whereby the Scottish Government, through agencies such as South Lanarkshire Council or a housing association would purchase the property at a valuation obtained by their surveyors. After deducting outlays, the creditor would be paid off and the applicants would then become tenants under the scheme to the Government agency. It was explained that an application had been made by the appellants and they had received a letter from the Housing and Regeneration Directorate dated 17 September 2009. This recorded that redemption statements had now been received from the two lenders to the appellants, who were the respondents and Welcome Financial Services Ltd. These statements showed a total secured against the property of £88,479.09. The property had been inspected by Government surveyors which showed a current value of £66,000. There was accordingly a substantial shortfall. The letter stated:

"For your application to be successful your lender must be prepared to enter into payment plans with you for any shortfall amount. They must also be prepared to sign the necessary discharge papers in due course to allow the sale of your property to go ahead. Please contact the lenders or their solicitors urgently to discuss this. I would also recommend that you contact your money adviser for assistance with this.

Please let me know when you have spoken to the lender or their solicitors in order that I can progress your application. Please note this is very important as your application will not proceed until this matter has been resolved."

6.            Solicitor for the appellants was bound to concede that no written approach had been made by the appellants to either lender. The appellants claimed that they had telephoned both lenders, but this was denied on behalf of the respondents. It had to be conceded that the consent of both lenders would be necessary before any money could be made available under this scheme. It was also conceded by the appellants' solicitor that he had only been advised of this action on the part of the appellants two days before the appeal hearing.

7.            I was referred to Rule 8.1(1) of the Sheriff Court Rules which provides:

"In any cause ... the defender or any party with statutory title or interest may apply to be reponed by lodging with the sheriff clerk, before implement in full of a decree in absence, a reponing note setting out his proposed defence or the proposed order or direction and explaining his failure to appear."

I was also referred to the case of Forbes v Johnstone 1995 SC 220 at 225A where the Lord Justice General, giving the opinion of a court of five judges, said:

"What the Rules now in force, that is the amended Rule 28 and Rule8.1 respectively, require is that the defender must set forth in the reponing note his proposed defence and he must explain his failure to appear. They also require the sheriff to consider the note before he decides whether or not to recall the decree. It is unlikely that the sheriff will be willing in the exercise of his discretion to recall the decree unless he is satisfied that the proposed defence is a stateable one. As for the explanation, it is not a requirement of the Rules that he must be satisfied that it provides a reasonable excuse for the non-appearance. The sheriff in the present case has pointed out that defenders may fail to enter appearance timeously for various reasons, some of which may be inexcusable. But it might result in an injustice if a defender who has a perfectly sound defence were to be denied the opportunity of entering the process simply because the explanation for his non-appearance was not a reasonable one. As the matter is at the sheriff's discretion he is entitled, in such a case, to take account of all the circumstances and to balance one consideration against another in deciding whether to allow the reponing note."

8.            It was submitted that Rule 8.1 as amended applied to this case as the appellant's were seeking a "proposed order", namely an order under the Mortgage Rights (Scotland) Act 2001. It was submitted that the sheriff, in rejecting the reponing note, focused solely on the absence of explanation of why the appellants did not deal with the writ timeously. It was suggested that the sheriff did not address the question of the order which the appellants were seeking under the 2001 Act. He concentrated solely on the appellants' failure to cooperate with the respondents.

9.            I was referred to a decision of Sheriff Principal Dunlop in Bradford & Bingley plc v Semple 2005 HLR 6 at 8 where he said at para 11:

"It was unlikely that the sheriff would be willing to recall the decree unless satisfied that the proposed defence was a stateable one."

And at para 12

"With that observation in mind, in my view the prospects of achieving merely the suspension of the exercise of the pursuers' rights for a limited period only will not suffice to demonstrate the existence of a stateable defence. I think the solicitor for the appellant was well founded in accepting a test which required the defender to satisfy the court that she had prospects of establishing that the lodging of a minute would lead to the purging of the fault and the extinguishing of the pursuers' rights under section 2(3) of the 2001 Act. Assuming that is what the defender is proposing to show I am of the opinion that that is prima facia sufficient to constitute a "defence" within the meaning of OCR 8.1(1)"

10.        It was submitted in this case that the stateable defence was that the appellants wished to obtain finance to purge the fault. It was accepted that was the position on 8 July 2009 before the sheriff. Matters had moved on and the current position was that arrangements could not be made to effect payment, but the appellants wished to enter into a mortgage to rent scheme which would purge the default and clear the indebtedness. It was accepted that this would need the consent of the respondents. It was further accepted that there was a shortfall between their current indebtedness of £68,714.57 and the valuation placed on the property by the Scottish Government's Surveyors of £66,000. It would also require the consent of the second lenders, Welcome Finance Limited, who would get nothing from this proposal. However, it was argued that this was a matter for the sheriff in due course. There was currently a stateable defence. I was asked to sustain the appeal, allow the reponing note, allow seven days to lodge a Mortgage Rights Minute and remit the matter to the sheriff to proceed as accords.

Submissions for the respondents

11.        Solicitor for the respondents explained that the Mortgage to Rent Scheme was to the effect that, if certain criteria were met, particularly the value of the property, the Scheme sought to find a social landlord, either a local council or a housing association, to buy the property at an agreed price. The social landlord would then become the owner of the property and the borrower would become their tenant. The heritable creditor would be paid off from the sale proceeds. It was pointed out that in this case there was not only the respondents as the first creditors, but also a second charge in the name of Welcome Finance Ltd. As at this date the arrears on the appellants' account with the respondents, where the monthly payment was £375.56, were £4,528.30. The balance outstanding was £68,714.57 and the property was valued by the Scottish Government's Surveyors at £66,000. I was provided with an updated chronology which indicated that on 13 July, 20 July, 22 July, 3 August, 14 September, 23 September, 30 September and 7 October, all in 2009, attempts were made by the respondents to contact the appellants by telephone and leaving messages for them to call back. Finally on 12 October contact was made by telephone with the second appellant Suzanne McIntosh who advised that she and the first appellant had now separated.

12.        Solicitor for the respondents further advised that on the morning of the appeal his clients had telephoned the Mortgage to Rent Scheme and were told that it was for the borrowers (the appellants) to negotiate agreement in relation to any shortfall in a sale with the creditors. I was informed that the appellants had not contacted the respondents about reaching any agreement in respect of the shortfall of a sale. The respondents' consent was necessary, but no steps had been taken by the appellants to obtain this. The consent of the second lender, who would get nothing under the proposed arrangement, was also necessary. It was unlikely that this would be obtained. It was further pointed out that although it appeared to be some time since the appellants had contacted the Mortgage to Rent Scheme, the appellants' solicitor was only advised about the position two days ago. It was submitted that the appellants' case as now pled at the appeal, namely that they propose to proceed with an application under the Mortgage to Rent Scheme would not provide a defence. On the basis of the information before the court, the debts to the two lenders would not be extinguished. I was referred to Macphail, Sheriff court Practice, 7.30:

"As to the matters on which the sheriff must be satisfied before granting the reponing note, the rule is entirely silent. The sheriff has a wide discretion: he "may on considering the reponing note, recall the decree". Accordingly, some of the earlier case law on reponing, which developed at a time when the rule was expressed in different terms, is of limited relevance today. In particular it should be noted that it is no longer the law that only where a defender has demonstrated a reasonable excuse for failure to enter the process timeously is it necessary for the sheriff to consider whether he has a stateable defence. But since a reponing note must set out both the proposed defence and an explanation for the failure to appear, it is clear that the sheriff must consider both of these matters when considering the note as a whole."

13.        I was also referred to Forbes v Johnstone, supra at 224C:

"Reponing is a matter which is now entirely in the discretion of the sheriff"

14.        As far as the note of appeal was concerned, it was submitted that there was no explanation in the reponing note of the appellants' failure to appear or defend the action. It merely states that:

"The appellants failed to correspond in the hope that matters would go away."

It was submitted that the sheriff was entitled to take into account the fact that there was no explanation for the failure to defend the action in the exercise of his discretion.

15.        It was further argued that it was not a defence by itself simply to state that a Mortgage Rights application would be made. It was necessary to state what would be in the application in order that the sheriff might consider whether there was a stateable defence. It was submitted there was nothing in the reponing note giving the necessary specification. There was a reference to securing funding to clear the indebtedness. There was a reference to a further lender "who may be able to assist". This was now to be considered against the situation where the value of the property of £66,000. This was substantially less than the amount required to redeem the two secured loans of £88, 479.09. It was difficult to argue in these circumstances that there were reasonable prospects of obtaining an alternative source of finance when the existing security was already overstretched.

16.        There was also the chronology lodged before the sheriff, which was available to me, which recorded the many occasions between 10 December 2008 and 7 October 2009 when the respondents had contacted the appellants by telephone and requested the appellants to call back. There were at least 26 such incidents. I was referred to section 2(2)(c) of the Mortgage Rights (Scotland) Act 2001 which states that the court was entitled to have regard to "any action taken by the creditor to assist the debtor to fulfil those obligations".

17.        The appellants state in the reponing note that they were both working, but there was no explanation as to why no payment whatsoever had been made to the respondents since their last payment in July 2008. There was no explanation offered as to why there had been no attempt to address any of the issues before the reponing note was lodged. It was submitted that the reponing note required to have a prima facia defence and not merely "if the court suspends the pursuers' rights of enforcement, we will start talking to you". It was clear that no further lender would be able to assist. Solicitor for the respondents emphasised the dicta of Sheriff Principal Dunlop in Bradford & Bingley plc v Semple, supra at para 12:

"I think the solicitor for the appellant was well founded in accepting a test which required the defender to satisfy the court that she had prospects of establishing that the lodging of a minute would lead to the purging of the default and the extinguishing of the pursuers' rights under section 2(3) of the 2001 Act."

18.        It was submitted that the sheriff, on the basis of all the submissions made on the contents of the reponing note, took the view that the appellants had taken no steps to respond to the initial writ and no steps to explain their failure to appear. They had done nothing to assist themselves and had not responded to any communication from the respondents. In these circumstances it was submitted the sheriff was entitled to take the view that the reponing note was no more than a delaying tactic and almost amounted to an abuse of process. The absence of any specific information in the reponing note about how their indebtedness would be cleared against the background of borrowings substantially in excess of the value of the property indicated there was no stateable defence.

19.        The sheriff was entitled to reach the decision which he did. Even if, at appeal, the court was prepared to consider the information in respect of the application under the Mortgage to Rent Scheme, it was submitted that the information supplied did not indicate there was a stateable defence. The sale of the property would not result in the clearing of the two loans and it was unlikely in these circumstances that any consent from either borrower would be obtained.

Decision

20.        I accept the submissions which have been made on behalf of the respondents. In my opinion the sheriff, in the exercise of his discretion, was in the whole circumstances entitled to refuse this reponing note.

21.        There was no reasonable explanation on behalf of the appellants as to why they did not enter appearance or make any response at all to this action until the day before the eviction was due to proceed when they consulted their solicitor. The chronology produced for the sheriff and to me at appeal indicated the substantial steps which the respondents had taken to try to reach an accommodation with the appellants to prevent this action proceeding. Had there been good faith on their part, the appellants would have been in a position to instruct their solicitors as to the steps they had taken in respect of the many approaches by the respondents either to reach an arrangement with them regarding payment, or to arrange alternate funding. Their approach to money matters was such that they were unable to obtain an appointment until after the ejection was programmed to take place. They only instructed their solicitor the day before the eviction was scheduled to take place.

22.        I have no doubt that the lodging of an appropriate application under the Mortgage Rights (Scotland) Act 2001 would, in the exercise of his discretion, entitle the sheriff to grant the reponing note as this was a "proposed order" in terms of Rule 8.1. However, for such a procedure to be successful, in my opinion there would have to be proper and cogent reasons put forward as to how the proposed action would lead to acceptable arrangements being made with the respondents or a discharge of the appellants' liability to the respondents. The reponing note falls well below that standard. In my opinion the sheriff was entitled to make the decision which he did.

23.        I have to say that if, at the date of the appeal, I had been satisfied that steps had been taken by the appellants between the decision on the reponing note and the date of the appeal which would allow matters to be satisfactorily resolved, I would have considered the possibility, in the exercise of my discretion, of allowing the reponing note in the interests of justice. However, the steps which the appellants have taken in respect of an application under the Mortgage to Rent Scheme are entirely inadequate. On the present information they are unlikely to achieve a satisfactory result. The appellants did not tell their solicitors about the application until two days before the appeal hearing. The letter they received from the Housing and Regeneration Directorate of the Scottish Government dated 17 September 2009 indicates the total amount secured against the property is £88,479.09 and the current value of the property £66,000. Neither of the lenders would receive full payment of the balance outstanding to them under the proposed scheme. In addition, it is clear that, having received the letter dated 17 September 2009 from the Housing and Regeneration Director of the Scottish Government, the appellants failed to follow this up with the necessary action to obtain agreement from the lenders prior to the hearing of the appeal. Accordingly I am not prepared on the basis of the information put forward to me at the appeal hearing, to interfere with the exercise of the sheriff's discretion.

24.        There appears to be no reason why expenses should not follow success in respect of the appeal. I accordingly award the expenses of the appeal to the respondents.