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The judgement of Sheriff Deutsch in the cases of RBS v. McConnell and Northern Rock (Asset Management) plc (NRAM) v. Millar has raised a few bankers eyebrows at a senior level. Indeed, the decision itself was on the menu at the Council of Mortgage Lenders annual lunch at the Balmoral Hotel in Edinburgh on Friday as CML UK Director General, Paul Smee, gave his annual speech.
As lenders prepared for lunch on Friday, I was in Glasgow Sheriff Court dealing with the outstanding matters in these cases. The NRAM case was dismissed with expenses in favour of the defender; part expenses were granted against RBS, and leave to undertake a leapfrog appeal straight to the Inner House of the Court of Session was granted in RBS plc v. McConnell.
Later that morning many of NRAM's repossession cases were dismissed in Glasgow with expenses in favour of defenders, while other repossession cases were continued or sisted pending the RBS appeal. It's a complicated business as the firms of Aberdein Considine and Co., and Irwin Mitchell have an additional argument which should have been heard in a debate this Monday in NRAM v. Houston, but they have asked for that case to be postponed and we agreed.
What does it all mean for Scottish consumers, lenders, and solicitors? In a nutshell, Sheriff Deutsch has ruled that 'default' for the purpose of mortgage arrears actions under the Conveyancing and Feudal Reform (Scotland) Act 1970 means the expiry of a calling-up notice. In order to comply with the Scottish Government's 'pre-action requirements' (PAR) lenders must send certain prescribed information to debtors after that default – that has not happened in practice, as most lenders have sent PAR information way before the expiry of the calling-up notice.
Of course before (and indeed after the PAR came into force later in 2010) it was always the case that lenders had to engage with debtors and send them certain information as a legal requirement across the UK in terms of the FSA's Mortgage Conduct of Business (MCOB) rules when they got into arrears.
What the 2010 Homeowner and Debtor Protection (Scotland) Act did in Scotland was strengthen that position in law. Following the UK Supreme Court's ruling in RBS plc. Wilson and others, it became clear that in all Scottish mortgage arrears cases a calling-up notice was required and so for the purpose of the PAR what Scots have got is a genuine extra layer of protection. That's good news for Scottish consumers, as they now have stronger protection than exists in England, Wales and Northern Ireland.
Some lenders solicitors are already (perhaps understandably) claiming this is all wrong, or a mess, or both. I have an interesting perspective because it was Govan Law Centre that called for the pre-action requirements in the first place a few years ago, at a time when very few advice agencies were prepared to challenge the Scottish Government's then assertion that we didn't need any further legal protection.
I chaired a cross-party meeting in the Parliament on this issue with Scottish Labour (Cathy Jamieson), Scottish LibDems (Ross Finnie), the Greens (Patrick Harvie) and Margo McDonald and we all wanted to see an extra layer of statutory protection to ensure repossession was a genuine last resort in Scotland: Sheriff Deutsch's judgement reflects and delivers precisely that, over and above the FSA MCOB forbearance protection. I can't see the problem, unless of course you are a lender who has not complied with the PAR.
Where does this leave us? Most of the NRAM actions will be dismissed with expenses in favour of defenders, and other lenders may choose to dismiss – I can see the logic in that as it's a pragmatic approach to move forward. Draw a line in the sand. RBS plc is appealing to the Inner House because they want certainty across the country and I can see the logic in that too, although it does carry certain risks.
Accordingly, what we have in Scotland is a lot of mortgage repossession actions being dismissed but probably many more being put on ice, sisted pending the RBS appeal. There are some interesting consequences not least who is paying for all of this? Lenders generally have already added on their legal costs and default charges to customers' mortgages (practice varies in timing but they all just debit the mortgage account at some point or several points).
I have no doubt that in cases dismissed lenders ought to refund all enforcement legal costs and charges added on to their customers accounts, as well as paying the defender's legal expenses. And if RBS were to be unsuccessful in their appellate proceedings that could mean across Scotland there was a need to refund all such legal expenses and charges. In you factor in all legal expenses – lenders enforcement expenses refunded to customer and sums payable to defenders – we could easily be looking at £10m across the country. Maybe less, maybe more. It's a tidy sum.
Meantime, until the Inner House rules (and even then this might up in the UK Supreme Court) some lenders will continue to dance on ice, as most repossession in Scotland are either frozen or dismissed.