New simple procedure does not change sheriff’s powers in dealing with undefended cases, appeal court rules

The court allowed appeals by Cabot Financial UK Ltd against decisions to dismiss its undefended actions for payment, after ruling that the “interventionist and problem-solving approach” required of sheriffs in the new procedure for determining claims of up to £5,000 in the sheriff court does not extend to undefended cases.

Undefended claims

Sheriff Principal Mhairi Stephen QC, sitting with Sheriff Principal Ian Aberbrombie QC and Sheriff Principal Douglas Murray, heard that the appellants had raised separate simple procedure claims against the respondents Robert McGregor, Liam Gardner and Kirsty Brown for payment of various sums due under a mail order credit agreement which each of the individuals had entered into with another company, JD Williams and Company Limited, which had assigned all rights in the debts to Cabot.

The basis upon which the various sums were due and payable was because the respondents were each in breach of the original contract, having failed to pay, as agreed, on demand.

In each case the proceedings were undefended, where either no form of response or defence had been lodged, although in Mr McGregor’s case a time to pay application had been submitted with a view to seeking an order allowing payment of the debt in instalments rather by lump sum.

However, the claims were dismissed for a number of reasons, including the fact that it was not clear whether Cabot had title to sue, where there was no specification of intimation of the assignation of the claim.

Further, the sheriff was not satisfied that an “unless order” under rule 8.4 of the Simple Procedure Rules had been complied with or that the claim form had been fully completed, and was also concerned that the requirements for the proper execution of regulated credit agreements may not have been complied with.

Pars judicis

Counsel for the appellant submitted that the sheriff had “erred” in dismissing the claims both on the basis of the court’s inherent jurisdiction, or pars judicis, and in failing to adhere to well established principles.

It was argued that the court’s application of pars judicis was “flawed”.

It was necessary to construe the simple procedure rules “in accordance with established principles of interpretation” and in the absence of clear and unambiguous language, rules do not alter the existing common law or extend the court’s powers in undefended cases.

The three conjoined appeals were test cases, with another 17 cases involving similar grounds of appeal having been sisted – or in simple procedure parlance “paused” – pending the outcome of the Cabot appeals.

Sheriffs erred

Allowing the appeals, the appeal sheriffs ruled that the sheriffs had erred in dismissing the actions.

Delivering the opinion of the court, Sheriff Principal Stephen said: “From an analysis of the simple procedure rules it appears to us that the main change is the focus on the court’s power to intervene to assist parties resolve or settle their disputes. The court will control the conduct of the case and may make orders which will identify the issues of fact and law which the court may have to determine and allow the sheriff to determine the appropriate procedure for the circumstances of a particular case. The court’s powers do appear wide and constitute, in effect, a more inquisitorial and pro-active approach. The second most notable feature of the rules is the language which is clearly designed with party litigants in mind.”

She continued: “We recognise that on a proper construction of the simple procedure rules they are designed to promote the court’s powers in disputed claims. It is not evident to us that the legislative intention behind the rules extends the court’s very limited inherent jurisdiction to enquire into the merits of an undefended action. The interventionist and problem-solving approach required of the sheriff in the context of the principles is that such powers are directed at defended claims where there is litiscontestation.”

The purpose of the introduction “unless orders” was to enhance the court’s case management powers to ensure the sheriffs have the “proper tools” to conduct simple procedure cases, in accordance with the aims of the Courts Reform (Scotland) Act 2014.

“In our view,” the appeal sheriffs added, “they are technically competent but designed for defended cases where there is litiscontestation. The mere existence of a power to make an ‘unless order’ does not innovate on the existing common law and practice, nor does it extend the sheriff’s jurisdiction in undefended cases in the absence of an express and clear power within the rules.”

Further, the court observed that consumer credit legislation, which regulates lending and protects borrowers, expressly permits consensual enforcement.

Sheriff Principal Stephen said: “We consider this to be a matter of some importance when analysing the extent of the court’s duty in undefended proceedings involving consumer protection legislation. A debtor who decides not to defend an action or respond to a claim may be considered to have admitted not only the validity of the claim but liability for the debt…

“Accordingly, we conclude that claims for payment involving regulated agreements raise in broad terms matters of public interest but the court’s function in such defended claims is to determine the parties’ competing positions on live issues whether relating to the validity of the agreement and its terms and/or liability for a debt arising in accordance with consumer rights legislation…

“Thus in undefended claims we cannot see a basis either in the rules of court or in consumer credit or consumer rights legislation to require the court ex proprio motu to investigate the enforceability of the agreement on which the claim is based. We accept the submission made on behalf of the appellant that it is not necessary in actions concerning regulated consumer credit agreements to produce the contractual documentation at the commencement of the action.”

The court concluded that, having regard to the Act of Sederunt and the 2009 European Court of Justice case of Pannon, which clarified the duty of the court when considering the fairness of a term where it does not have adequate information to do so, and in the absence of any specific provision in the simple procedure rules requiring such documentation, it was “both surprising and irregular that the sheriffs not only required that such documentation be produced but in the absence of such documentation declined to grant decree in absence and dismissed the claims. We are therefore of the view that the sheriffs in so doing exceeded their powers”.