Andrew Foyle

There have been a number of recent Sheriff Court decisions involving lenders in the asset finance industry, that have clarified some technical issues around the manner in which such debts are to be pursued through the courts.

The issue arises due to the very fact that asset finance lenders have both lent money to their customer and retain ownership of the asset in question until such time as the lending is repaid or the agreement otherwise comes to an end.  In terms of debt recovery, the lenders are therefore in a fairly unique position.  For where an agreement is in default, the lender will have an outstanding balance on their lending and have an asset that they will want to take possession of in order to recoup at least part of that balance. 

In most cases efficiency dictates that solicitors in Scotland raise these two claims within a single action. The questions which most commonly arise are: (a) under what form of court procedure should such actions be raised; and (b) in what order should the court deal with the claims and/or can they deal with the whole case at once?

As outlined below, the recent sheriff court authority goes some way to addressing these issues.

In Black Horse Limited -v- Cameron (Judgment of Sheriff Jamieson at Dumfries, dated 20th March 2019) a Simple Procedure action was raised seeking delivery of a motor vehicle, in a case where the outstanding balance of the finance agreement was in excess of £32,000.  The Simple Procedure relates to claims of under £5,000 in value although in this instance there was no claim for payment of money; merely for delivery of the vehicle itself.

The Sheriff had noted that the legislation introducing the Simple Procedure had not been fully brought into force.  As things stood, the court could only entertain a Simple Procedure action for delivery if it was coupled with a claim for up to £5,000 as an alternative to delivery.  In this case there was no such alternative sought. Moreover, the value of the goods was considerably in excess of £5,000.  Consequently, the Sheriff held that the claim was incompetent and dismissed the action.  A claim for only delivery of the asset required to be brought under the old summary cause procedure which remains in force for these purposes.

Just over a week later a case arose dealing with almost the antithesis of this issue. In Clydesdale Financial Services Ltd -v- Wojcik (Judgment of Sheriff Foulis at Perth, dated 28th March 2019) the balance outstanding on the account stood at £2,217.94.  Under the Ordinary Cause procedure, the pursuers raised an action to seek payment of the total sum due under the agreement. They also submitted a declarator claiming entitlement to delivery of the vehicle in question and various orders for the delivery or uplift of the vehicle.  As the Ordinary Cause procedure is generally for claims above £5,000 in value, the question before the Sheriff was whether the action was competent to be raised as an Ordinary action in light of the other orders being sought..

Notably, it was argued (by the lender) that because one of the orders sought was a declarator (which could not be sought under the Simple Procedure), the action was competently raised as an Ordinary action. The court disagreed. The Simple Procedure was intended to introduce a less formulaic approach to the form of orders sought. In a case where the claimant is granted an order for delivery, which failing to search for and uplift a vehicle, the court held that there is no particular need for a declarator stating that they have the right to do so. The right is implied in the fact that they hold the order. Consequently, the declarator is effectively redundant.  If that is the case then the whole outcome desired by the claimant can be encompassed in a Simple Procedure action.  That would render the Ordinary action incompetent.

The Sheriff then considered whether he could remit the case from the Ordinary roll onto the Simple Procedure Roll. The Sheriff considered that in this instance he did have a degree of discretion to do so. However, he declined to exercise that discretion.  He reasoned that due to the original action being incompetent from the outset, the remit would require to proceed as though it were an entirely new Simple Procedure claim and so there was very little to be gained by transferring the cause. This was not a case where the error was “an understandable one arising from an oversight”, nor one where failure to exercise discretion might result in the loss of a remedy.  The action was accordingly dismissed.

Considered collectively, Black Horse and Clydesdale Financial Services are a reminder to practitioners that careful consideration needs to be given to the remedies being sought. Particular care needs to be taken where the value of the claim does not fit within the set of rules the practitioner seeks to raise the action under. 

More recently, the case of Santander Consumer (UK) plc -v- Creighton (Judgement of Sheriff Mann at Aberdeen, dated 18th April 2019) considered the position where an asset finance lender has asked the court for a number of remedies in a single action.  In particular, is a lender able to seek payment of the balance of the loan in addition to the delivery or uplift of the asset.

In that case the lender sought payment of a sum representing the full balance of the loan. They also sought delivery of the vehicle that was the subject of the agreement and various ancillary orders to allow uplift of the vehicle if it was not delivered to them. The action was not defended. The lender sought a decree for both payment of the full amount of the loan and for delivery or uplift of the vehicle.  The Sheriff questioned the competence of such an order and sought submissions from the lender’s solicitor.

The lender’s position was that the loan agreement provided for immediate payment of the balance of the loan upon default, subject to deduction of certain items, one of which was the sale price of the vehicle.  It was argued that the use of the words “immediately” in relation to payment meant that the court could grant the order notwithstanding the vehicle had not been repossessed and sold. The wording of the agreement, it was argued, gave a right, but not a duty to possess the vehicle, and the sum due by the customer was capable of being demanded without a sale taking place.

The sheriff did not accept the lender’s submissions.  His reading of the writ as a whole was that there was acceptance by the lender that the amount to which they are entitled might ultimately be less than they were seeking. The sheriff reasoned that the monetary amount did not stand independently of the other orders sought for recovery of the vehicle. The sheriff considered that the amount due could only be known once the goods have been recovered and sold. That being so, the word “immediately” in the agreement meant “immediately the sum due has been ascertained”. If that was correct, the sheriff considered it premature to grant the order for payment of money at this stage. Instead, the sheriff granted judgment only for the delivery and uplift of the vehicle, preserving the monetary claim for determination following sale of the vehicle.

The sheriff’s judgment is not immune to criticism, and it is noted that the final paragraph suggests that it may be the subject of an appeal.  However, the lessons for practitioners steering claims through the courts on behalf of asset finance lenders is clear. Lenders will wish to give careful consideration to strategy and it may be prudent in appropriate cases to depart from the current practice and to consider a different structure to the claims and remedies sought.