Obligation of a Heritable Creditor
The marketing and sale of repossessed property, in order to obtain the best price, is a perennial concern for heritable creditors. It has always been understood that the heritable creditor in such circumstances must pay due regard to the interest of the debtor when it comes to sell the heritable property, but the current statutory position is somewhat more onerous. Under section 25 of the Conveyancing and Feudal Reform (Scotland) Act 1970 (the “1970 Act”) the heritable creditor must “take all reasonable steps to ensure that the price at which all or any of the subjects are sold is the best that can be reasonably obtained.”
At first instance, the decision turned on whether - if the property had been marketed for a longer period of time - a better price might have been obtained for the heritable property. It would appear that the Sheriff preferred the evidence of a chartered surveyor appearing as a witness for the debtor, whose opinion was that with an additional three months of marketing the heritable property could have been sold for £175,000 rather than the £150,000 accepted by the heritable creditor. The heritable property had, at the point of sale, been on the market for twelve weeks. The Sheriff arrived at the view that the heritable creditor had not discharged their duty under section 25 of the 1970 Act and awarded the sum of £10,000 in damages to the debtor.
Appeal and Cross-Appeal
The debtor appealed against (1) the level of damages awarded; and (2) the Sheriff’s refusal to award interest on the damages.
The debtor argued that:
- damages in the sum of £25,000 ought to have been awarded (the difference between the potential price identified by the surveyor and the sale price achieved by the heritable creditor); and
- there was no cogent reason not to award interest on these damages. The heritable creditor also cross-appealed although the cross appeal was rejected.
The Sheriff Principal upheld the decision to award only £10,000 in damages on the basis that the assessment of damages was within the “broad judgement” afforded to the Sheriff by previous case law (Wilson v Dunbar Bank PLC). According to the judgement, the only valuation evidence led at the hearing was from the debtor and no counter professional valuation evidence was led by the secured creditor. Despite that the sheriff principal was not willing to interfere with the findings of the court at first instance on damages. The sheriff principal did however decide that there was an error in not awarding interest (on the basis that the lender had frozen interest on the shortfall) and found that interest ought to be awarded on the amount of the awarded damages.
The case serves as a useful reminder to heritable creditors that failure to sell a repossessed property at the “best price that can reasonably be achieved” could leave them exposed to an action for damages being raised against them by the debtor.
When assessing whether to award damages, this case demonstrates that no entirely scientific exercise is intended to be carried out by the courts. Rather, all of the factors in the case taken together are to be used to give a broad measure of the damages payable, taking account of all the evidence heard in the case.
Unfortunately, there is no information in the case report as to exactly how the heritable property was marketed by Blemain Ltd. There is past judicial comment to the effect that ordinarily a heritable creditor will have fulfilled its obligations (in terms of section 25 of the 1970 Act) by taking and acting upon appropriate professional advice (Dick v Clydesdale Bank PLC). In Dick Lord Cowie was even prepared to say that if agents are employed to market the heritable property the heritable creditor has only failed in his statutory duties if the agents have, to the knowledge of the heritable creditor, made a serious blunder resulting in a large reduction in the price realised.
One small point which does not seem to have been canvassed in the case is to what extent the creditor has discretion in the timing of the sale. In Dick Lord President Hope accepted that “it is clear the creditor is entitled to sell the security subjects at a time of his own choosing, provided he has taken all reasonable steps to ensure that the price at which he sells is the best that can reasonably be obtained at that time”. It might be suggested that this principle will act as a limit on any requirement on the creditor to expose the subjects for sale for any particular length of time.
Practically speaking, what does this case mean for heritable creditors looking to sell a repossessed property? In the first instance, it will be important for heritable creditors to demonstrate that they have taken and relied upon the advice of their property agents as regards the advertisement, marketing and sale of the property. Had valuation evidence been led by the heritable creditor and that evidence been preferred by the sheriff it is unlikely that the assessment of damages issue would have been appealed. Where a customer makes any criticisms, comments or objections to the sale process these ought to be considered and responded to fully by the heritable creditor and a written record of this should be kept. If the debtor goes further and produces their own valuation at a higher amount, then we would suggest that it would be prudent for the heritable creditor to undertake some further investigations in this regard and seek professional valuation advice.