17th April 2017

Lenders Beware the Statutory Forms

Recently Sheriff Mann at Banff Sheriff Court issued a judgement which he stated he came to “reluctantly because it is apparent to me that the defenders know that the pursuers are the creditors in the mortgage, even though they may not be secured creditors,…know that the debt must be repaid and yet have been able to resist decree passing against them in this action by virtue of what can only be described as a technicality.” So what was the nature of this technicality that so frustrated the court and the lender?

The case in question was OneSavings Bank PLC v Burns & Others. In this case the lender claimed that they wished to enforce a standard security in respect of the property owned by the defender. The standard security had been assigned to them through a sequence of assignations from the original lender. The defender argued that as the form in question did not follow the exact wording of the statutory form prescribed in these cases, it was ineffective. This is particularly troubling to the lender community as the form used by the lender is one commonly employed within the industry.

The defender’s first argument was that the statutory form made reference to deeds of assignation in the singular rather than plural and as such, given that a series of assignations were being relied upon, it was not competent to rely upon a form referring to multiple assignations. However, lenders can breathe a sigh of relief as the court dismissed this argument as being ill founded for various reasons.

The defender’s second argument was more effective. The defender argued that given that the relevant legislation required that the form used be “exactly the same in terms of style and content” as the statutory form or at least “so conforms as closely as may be.” Any deviation from the statutory form would be fatal. To be precise the form used did not include the statutory wording “to the extent of £      being the amount now due thereunder” to establish what the debt was at the time of the assignation. The court drew upon several legal texts in this area and determined that effectively an assignation in the statutory form converted an all-sums security into a fixed sum security and for that reason the exact sum at the date of assignation must be stipulated in order for the form to be effective.

The lender drew to the court’s attention an earlier case where deviation from the statutory form was permitted and thereby claimed that the wording was not mandatory but advisory. However, the court did not accept this argument and emphasised that a pressing need to vary the statutory form must be present (for example in the earlier case, the agreement was a triparty rather than a biparty agreement and as such the wording needed to be amended to reflect that). In the absence of such a pressing reason the Sheriff held that the statutory wording ought to have been used, for the reasons stated above, and in their absence the form used failed to put the lender into the shoes of the original lender with all the rights associated with the standard security.

This case is perhaps a timely reminder to all not to blindly follow company forms but to ensure that where the law has prescribed a set form that this is used.

If this article has raised any issues which you would like to discuss with a solicitor please do not hesitate to contact our dispute resolution team who will be happy to advise and assist.

Alastair Johnston
Senior Solicitor – Dispute Resolution

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