Much has been made by opportunistic solicitors and borrowers following the recent OneSavings v Burns case. In that case Sheriff Mann ruled that an assignation of an “all sums due” standard security which did not specify the sum outstanding at the date of the assignation was invalid, and did not effectively transfer the standard security. This was potentially problematic as in recent years it has been market practice to sell loan books by way of assignations in this manner and if Sheriff Mann was correct, the standard securities would not transfer with the loan.
However, a potential solution now exists. Addleshaw Goddard (formerly HBJ Gateley) recently acted for Clipper Holdings in the case of Shear v Clipper Holdings, where the pursuer sought interim interdict against the operation of a calling up notice, relying on OneSavings and contending that Clipper did not have title to enforce the security. The matter was argued before Lord Bannatyne in the Commercial Court on 25 May 2017. The following day, Lord Bannatyne issued a decision, refusing the motion for interim interdict. The mains points from the judgment are:
- The argument for the pursuer was extremely technical in nature. It sought to make the wording of Note 2 to Form A in Schedule 4 to the Conveyancing and Feudal Reform (Scotland) Act 1970 mandatory, such that failure to follow same resulted in invalidity. That argument failed to take account of modern developments in the law regarding the mandatory / directory dichotomy. Failure to follow statutory procedure does not automatically result in invalidity. Rather, the court should look to the statute to see if the scheme of the Act is such that invalidity should follow, and in doing so it should strive to be fair and exercise commercial sense, including considering the seriousness of the breach: Newbold and others v Coal Authority  1 WLR 1288; CTB v White  UKPC 39. Primary amongst the considerations would be the seriousness of any breach. Here, there was no serious breach, and it would be a grave injustice to rule in favour of invalidity.
- Moreover, the Court should look for a purposive interpretation. The statutory purpose can be seen in s.14 of the 1970 Act, which says that an assignation of a security will, on registration, mean that the security “shall be vested in the assignee as effectually as if the security or the part had been granted in his favour”. On the pursuer’s argument, that result is not obtained: an “all sums due” security which requires (by virtue of the stipulation of the sum outstanding) to be converted into a fixed sum security will no longer be an “all sums due” security, and will thus not be “vested in the assignee as effectually as” if he had been the original grantee.
- The Sheriff in OneSavings had not been favoured with the detailed argument that Lord Bannatyne had. Lord Bannatyne simply disagreed with the approach of Sheriff Mann.
- Accordingly, no prima facie case had been demonstrated.
- Even if prima facie case had been demonstrated, the motion would have been refused on the basis of the balance of convenience. The wholly technical argument advanced by the pursuer was used as a delaying tactic only, and would not be countenanced by the court.
If you are a lender or an insolvency practitioner and have concerns over the validity of a fixed charge following an assignation on an all sums basis, Addleshaw Goddard would be happy to review the assignation and underlying standard security to confirm its validity. Please contact Jamie McIntosh or Lynsey Walker for more details.