Purported assignee of standard security relying on redacted document ruled to have no title to enforce by Glasgow sheriff

Giovanni Guidi granted a registered standard security and a personal guarantee in favour of the Clydesdale Bank in 2011. The defender, Promontoria (Chestnut) Ltd, claimed to have been assigned the bank’s interests in the security and guarantee in 2015, and sought to make a charge for payment on the pursuer in the sum of over £450,000. The pursuer sought reduction of the charge and declarator that Promontoria had no title to either interest.

The action was heard by Sheriff Stuart Reid in Glasgow Sheriff Court.

Redacted copy

The defender had been assigned multiple book debts and securities by Clydesdale Bank, including a standard security and a personal guarantee granted by the pursuer, a corporate customer of the bank, in 2011 in respect of his home in Bothwell, Glasgow. A charge for payment of £450,258.97 was served by the defender upon the pursuer on 15 November 2016, ultimately leading to his sequestration.

It was averred by the pursuer that the defender had no entitlement to enforce the instruments against him. In its defence, Promontoria lodged a redacted certified copy of the assignation document, claiming that any redactions were justified due to “commercial sensitivity” and did not contain any material relevant to the case.

In response to this, the pursuer submitted that the redacted document was ineffective insofar as it purported to assign the standard security on the basis that the purported bulk assignation did not follow the prescribed wording for such an assignation contained in the Conveyancing and Feudal Reform (Scotland) Act 1970, in particular by not stating any meaningful extent to which the security was assigned.

It was further submitted for the pursuer that the defender was unable to aver a relevant title without lodging in process a complete and unredacted copy of the supposed assignation. The copy lodged before the court was incomplete without access to the redacted parts and thus could not definitively establish that the defender had the title it claimed to have.

Trap for the unwary

In his decision note, Sheriff Reid began: “The document upon which the defender expressly founds is, indubitably, an assignation of sorts, but it is not an assignation that conforms to the prescribed statutory form for the assignation of a standard security. It is disconform to the prescribed mechanism because it is, in form, a multilateral contract or deed subject to reciprocal obligations and conditions, that does not bear to effect a de praesanti transfer of real rights in security over heritable property, and is not capable of being registered in the Land Register to achieve that end.”

He continued: “It may well create rights in personam between the Bank and Promontoria inter se, whereby the defender is entitled to demand (and the Bank is obliged to grant) an effective assignation of the heritable security to Promontoria; but, until that occurs, as between Promontoria and third parties (including the debtor), the assignation founded upon in the Defences is not effective to vest in Promontoria the Bank’s right and title to the standard security or, by extension, to entitle Promontoria to execute diligence on the back of that heritable security.”

Explaining his reasoning further, Sheriff Reid said: “The assignation of a standard security involves the transfer of different types of legal right (real and personal, heritable and moveable), with the result that different forms and procedures may have to be followed. The trap for the unwary is to assume that all rights, whatever their nature, can effectually be transferred in the same way, by the same form, and by the same procedure. Unfortunately, it is a trap into which Promontoria has fallen in the present case.”

He concluded on this issue: “The exercise is objective, not subjective. The prescribed wording may happen to be immaterial or irrelevant to the particular parties to a particular transaction, but, by process of statutory interpretation, it can be seen to be material to the underlying legislative purpose of achieving simplicity and certainty, efficiency and efficacy, in the majority of transactions across a multiplicity of factual scenarios.”

Preposterous state of affairs

Turning to the defender’s lodging of a redacted document to establish its claim, Sheriff Reid noted: “The defender’s dogged refusal to exhibit the unredacted document of title on which it founds its defence has been the de quo of the parties’ dispute for years, culminating in a two day debate. Frankly it is a preposterous state of affairs.”

He went on to say: “A redacted document is not deemed by any statute to be the equivalent of the complete document. A party is not ‘entitled’ in any sense to lodge an incomplete document in lieu of the complete document founded upon by it. Instead, if a party wishes to lodge a redacted version of a document that is founded upon by it (or incorporated in its pleadings), it should seek leave of the court to do so, and justify that request.”

The sheriff said of the consequences of this: “On the basis of his pleadings, Mr Guidi is entitled to put Promontoria to proof of the whole terms of the document founded upon by it, having given ample notice in his pleadings (and other parts of process) that the absence of the Assignation (and SPA), complete and unredacted, is a material issue in dispute.”

Sheriff Reid concluded: “In the present case, Promontoria chose to proceed to debate on the basis of a redacted document of title, in full knowledge that the absence of the complete deed was a material issue in dispute. It is ‘the author of its own difficulties’. In this case, for Promontoria, the chickens have come home to roost.”

For these reasons, the sheriff granted declarator that the defender had no title to the standard security, and ordered the defender to lodge a complete, unredacted copy of the document it founded upon within 21 days.