The aftermath of RBS v Wilson
Neil Crockatt, director of property services (Scotland) at Optima Legal, discusses the implications of the RBS v Wilson case, which has changed 40 years of established repossession practice
Following a consultation period which ended in March 2011, the Scottish Government has decided that no legislative steps are necessary in the light of the recent Royal Bank of Scotland v Wilson case.
The Supreme Court decision in RBS v Wilson in November 2010 shook the legal landscape in Scotland in respect of repossession procedures by holding that the relevant statute, the Conveyancing and Feudal Reform (Scotland) Act 1970 had effectively been wrongly interpreted since it came into force 40 years ago. The result is to compel a creditor to follow the 'Calling Up' procedure laid down in the Act. A ‘Calling Up Notice’ served on the borrower under this procedure requires repayment of the full amount of the loan together with interest and expenses within a two month period of the date of the notice.
Concern has been raised by lenders and others that the compulsory two month period will only serve to increase the burden on all parties as interest will continue to accrue on the loan and the lender's costs will increase due to the continuing administration of the loan during this period. Some commentators say these additional costs are unnecessary and the matter of who should bear these costs remains at large.
The recent Scottish Government consultation invited the views of a variety of interested parties including lenders, solicitors and other bodies such as the Council of Mortgage Lenders, the Registers of Scotland and The Law Society of Scotland. Opinions were sought on the long-term implications of the Supreme Court decision and whether legislation should be introduced to mitigate any such effects or, indeed, force a return of the repossession process to that which existed prior to the ruling in the case.
The case has raised the issue (not for the first time) of where the balance should lie between the practical implementation of legislation and the strict letter of the law.
Understandably, many of the lenders and lending service contributors to the consultation process focused on the practical aspects of increased timescales and costs both for the borrowers and themselves. Many took the view that established practice had existed for 40 years and the Scottish Government had not seen the need to alter that practice when framing recent related legislation. The CML, among others, argued strongly that legislation should restore the procedure to its former state.
A number of the legal contributors and others, however, felt that this perceived increase in timescales and costs was relative only to the prior 'wrong' procedure and the 'new' procedure was, in all likelihood, the intent of those who drafted the 1970 Act. Perhaps it is preferable, they say, that 40 years of incorrect interpretation has come to an end and the correct intentions of the 1970 Act are now being implemented. It was suggested that it would be preferable for a degree of guidance to be given on the new procedures by the Government to the courts in the current uncertainty and ensure consistency of decisions rather than implement emergency legislation.
The Scottish Government has taken a number of months to come to a decision which was announced last month and, in the light of the consultation, has decided to resist calls for any form of legislative intervention and allow matters to play out their natural course in the wake of RBS v Wilson. It was not convinced of the existence of any long-term negative implications of the decision. It should also be noted that in reaching this decision, it is likely that the Scottish Government took into account the existence of an ongoing project relating to the whole area of heritable securities in Scotland in the hands of the Scottish Law Commission, which is due to report on its findings in 2014. A few of the consultees stated a preference for that study to deal with any implications of RBS v Wilson rather than see a knee-jerk reaction from the Government now.
In response to the announcement, the CML expressed its disappointment and commented: "We fully accept that there needs to be a balance between the rights of lenders as creditors and the rights of borrowers as debtors but in our view the balance in favour of borrowers has probably gone too far and may not be in their best interests."
It seems, therefore, for the foreseeable future at least, that the changes brought about by the RBS v Wilson decision are with us to stay and lawyers and lenders alike will be required to accept the current procedures as the correct interpretation of the 1970 Act.