Homeowner loses appeal against recovery of property following decree by default over failure to repay loan

A homeowner who challenged a decree by default granted in favour of a bridging loan company which was seeking to recover possession of her home over her failure to repay funds she borrowed to buy the property has had her appeal dismissed.

The Inner House of the Court of Session upheld a decision of the Sheriff Appeal Court, which in turn refused an appeal against a decision of the sheriff at Forfar Sheriff Court dated 20 January 2017 granting decree by default in a summary application by the pursuers for recovery of possession of the defender’s home at Cotterton Lodge, Forfar.

‘Bridging loan’

The Lord President, Lord Carloway, sitting with Lord Brodie and Lord Drummond Young, heard that in order to purchase the Lodge, the defender Sandra Hutton had obtained funds, first, from the Halifax Bank and, secondly, in the form of a bridging loan of £50,000 from the pursuers Bridging Loans Limited.

Both loans were secured over the Lodge, with Halifax having a prior ranking, and a standard security was executed by the defender in favour of the pursuers, which was registered in November 2013.

The bridging period was originally 12 months to 5 November 2014, but the defender did not repay the loan.

In September 2015 the pursuers served a calling up notice in terms of section 19 of the Conveyancing and Feudal Reform (Scotland) Act 1970 requiring payment of approximately £86,000.

In November 2015 the pursuers advised the defender that the calling up period had expired, but they gave her an additional 28 days by which to repay the loan.

After the defender again failed to repay the loan, the pursuers lodged an application for possession.

Following multiple discharged hearings throughout the course of 2016, a further diet of proof was assigned for 20 January 2017, by which time the defender had been represented by four different law agents and had appeared several times as a party litigant.

‘Extraneous circumstances’

The defender, who accepted that she was in default, argued in terms of section 24(5)(b) of the 1970 Act that it would not be reasonable for decree to be granted on the basis that there were “extraneous reasons” for her failure or inability to pay; notably the fact that she had not been able to sell the property.

She maintained in the sheriff court that the property was being actively marketed and missives were expected to be completed by December 2016.

She had been discussing refinancing with other lenders, but the pursuers had hampered her efforts.

The defender also founded upon a number of health complaints in support of her position that she needed to have a permanent residence and ought not to be the subject of a decree of ejection.

Shortly before the proof diet of 20 January 2017, the defender’s latest agents withdrew from acting.

The defender, who represented herself, moved for a discharge of the proof and a continuation of the case on the basis that the property was to be sold at auction and that the auctioneers were confident that the sale price would exceed £350,000, but the motion to discharge the proof was opposed.

The sheriff asked the defender if she had any documentary evidence which could vouch her assertions and adjourned the case for 15 minutes to allow the defender time in which to produce the emails which she said would do so.

But when the case was recalled the defender was not present, having been seen leaving the court building by the bar officer.

Decree by default

The sheriff had her case recalled without success, at which point the pursuers’ agents moved for decree by default, which was granted.

The defender did eventually return to court, but this was some 30 minutes after decree had been granted and by that time the pursuers’ agent had left the court to return to Glasgow.

The sheriff considered that the defender had been trying to engineer a further adjournment or otherwise to delay the grant of decree against her.

The basis for his reasoning was partly the history of the case and the fact that he regarded the defender’s prospects of success as being limited.

Her averment that the property could be sold within a reasonable period had not been realised and her averments of ill-health were unsupported by any form of medical vouching.

The Sheriff Appeal Court refused the defender’s appeal, having observed that the decision whether to grant decree by default was a matter for the sheriff’s discretion and that the sheriff had taken into account the “whole circumstances” and had regard to where the “interests of justice” lay.

In particular the sheriff required to do justice both to the defaulter and to the “innocent victim of the default”.

By the time of the appeal hearing, the property had failed to sell at auction, yet the defender wanted more time to refinance her purchase.

She had been granted “remarkable latitude” and continued to employ delaying tactics, which justified the grant of decree.

‘Serious prejudice’

However, in the appeal to the Court of Session it was contended on behalf of the defender that the sheriff had “failed to exercise his discretion correctly”.

He had not considered whether there were “exceptional circumstances, inordinate or unexplained delay or the “substantial risk of unfairness or serious prejudice”.

The sheriff had assumed that the defender had failed to appear after the adjournment as a result of bad faith, but she claimed that she had left the court building to find a Wi-Fi signal and that the court staff had known this.

It was submitted that the sheriff had erred in holding that the onus of establishing that it was unreasonable to grant decree rested upon the defender and that he had erred further by holding the pursuer had very limited prospects of resisting decree.

The appellant’s circumstances had changed and she wished more time in which to resolve matters, but the pursers argued that sheriff had not misdirected himself in law, nor reached an unreasonable result or exercised his discretion wrongly, and therefore the court should be “slow to disturb” the sheriff’s “wide discretion”.

The delay in the overall progress of the action had been “inordinate” and further delay would cause the pursuers “unfairness and serious prejudice”, as the loan outstanding was, by the time of the sheriff’s decision, approaching £130,000 and no re-payments had been made.

The judges said they had “no hesitation” in refusing the appeal.

‘Poor prospects of success’

Delivering the opinion of the court, the Lord President said: “This appeal involves a discretionary decision of a sheriff to grant decree by default in circumstances in which the pursuer had failed to appear, as she was required to do, after the sheriff had already indulged her by granting an adjournment to produce certain emails to vouch her position.

“This was in the context of a summary application which had proceeded, for such an application, at a glacial pace by reason of repeated discharges of diets of proof at the defender’s instance. There is no defence to the action.

“The defender owes the pursuers ever-increasing sums, now in the region of £150,000. The defender has had ample opportunity, in what will shortly become three years since the application was lodged, to take whatever steps could be taken in relation to the sale of the Lodge. In these circumstances the court has no hesitation in refusing this appeal.”

Lord Carloway continued: “No error on the part of the sheriff has been discovered which would justify interfering with his decision. Where a default has occurred, and decree granted against the defaulter, the appellate court will look at the whole circumstances (including any new explanation for the default) in order to determine whether, nevertheless, the interests of justice require its recall.

“This is what the SAC did. The Sheriff Principal (Lewis) also deduced that the appellant was continuing to employ delaying tactics and had poor prospects of success in her defence to the action. The court agrees with that analysis.”

However, the court expressed concern in relation to the grant of permission to appeal.

“Such permissions may only be granted if there is an important point of principle or practice raised or there is some other compelling reason for the court to hear the appeal,” the Lord President said.

He added: “Notwithstanding the terms of the appellant’s application for permission, the court has been unable to find any basis for the view this appeal, which sought to review a discretionary decision of a sheriff, on a matter concerning sheriff court procedure which had already been reviewed by the Sheriff Appeal Court, raises any point of principle or practice, far less an important one, or that there was a compelling reason for the court to hear the appeal.”