23 Feb 2013

Pre-action Requirements in 2013

Pre-action Requirements in 2013

Aaron Doran, Associate, takes a look at what 2013 might have in store with regard to PAR and its treatment in the courts.

Aaron Doran, Associate, takes a look at what 2013 might have in store with regard to PAR and its treatment in the courts. 

Lenders will be acutely aware of Glasgow Sheriff Court’s Sheriff Deutsch and his decision in the March 2012 cases of NRAM v Millar and RBS v McConnell. 

What happened in Millar & McConnell again?

Sheriff Deutsch decided that ‘default’ for the purposes of the Scottish Pre-Action Requirements occurs not when a borrower falls into arrears, but when a Calling Up Notice expires (despite the Scottish Government’s own Guidance Notes expressly stating a contrary position). The practical effect is that lenders must now consider carrying out their PAR compliance immediately before raising a court action, as opposed to when an account falls into arrears.

A Contrary Decision - Accord v Dickson?

In July last year we convinced Sheriff Bicket at Hamilton Sheriff Court to take a completely different approach to Sheriff Deutsch in the case of Accord Mortgages Ltd v Thomas Dickson.  Sheriff Bicket commented that “the earlier that the debtor is given information in the circumstances where he is in arrears the more likely it is to be of use to him in coming to an arrangement or otherwise in dealing with the problems that he has at that stage.  To insist that the debtor is not given the information until the expiry of the calling-up notice seems to me to disadvantage the debtor rather than the creditor and it was clearly envisaged by the Scottish Government that the debtor be given the information as early as possible with a view to assisting with his situation.”

Back Came Deutsch...

Five further cases have since been heard at a Debate Hearing (legal argument) at Glasgow Sheriff Court.  Despite both parties agreeing with Sheriff Deutsch that “it was possibly not desirable” (with Deutsch on the bench it was highly unlikely he would contradict his previous decisions) for him to hear the cases, on the day he was again assigned to hear the Debates (as a result of changes to the court program and “there being no prospect of a different Sheriff becoming available”). In spite of new arguments being put to him, Sheriff Deutsch unsurprisingly did not differ from his views in NRAM v Millar and RBS v McConnell. 

One particular proposition that was put forward by us was that a flexible construction could be placed upon the requirement to provide information as soon as is reasonably practicable upon the debtor entering into default.  We argued that requirement could be satisfied by communication made at around the time of the expiry of the calling up notice, given that the borrower was already in possession of the required information at the time the calling up notice expired.  Unfortunately, Sheriff Deutsch  did not agree (unsurprisingly) with this interpretation and stated that the requirement to “provide information only occurs once the debtor has actually entered into default”.  Thus, rendering previous information sent to the borrower (regardless of whether that information is exactly the same or if it was sent only days before the calling up notice expired) insufficient to comply with PAR.

The Sheriff continued to comment on what the consequence was of a lender’s failure to comply with the pre-action requirements.  Although the consequences are not stated in the Act, it does state that “before making an application…the creditor must comply with” PAR.  The Sheriff ruled that it is therefore obvious that the legislative intention was for the requirement to be mandatory and as such, if a lender has failed to comply with PAR, the action must be dismissed.

Going Forward

Three out of the five cases that called before Sheriff Deutsch were dismissed as a result of the lenders’ failure to comply with PAR.  However, in two of the cases (Santander v Allan and Nationwide Building Society v McCann), Sheriff Deutsch commented on our client's new 'Calling up Notice Expiry Letters', which are now sent to borrowers in every case once the calling up notice has expired and before action is raised.  The Sheriff stated that in his view the new style letters provide all the information required to meet the Pre-Action Requirements (as regards to the provision of information).

The position therefore remains that lenders must take a 'belt and braces' approach to PAR compliance when litigating in Scotland. The Scottish Government - as opposed to the Courts - are now probably the only likely source of clarity on the issue with most, if not all, potential 'challenge cases' now having left the forum of Scotland's courts.

Aaron Doran, Senior Solicitor

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