Upper Tribunal rules housing tribunal wrong to question validity of guarantee agreement in undefended action for payment

Appellant Alice Woro sought payment from respondent Ian Brown under the terms of a guarantee agreement under which he agreed to meet any rent shortfalls by tenant Vikki Brown. She argued that, as the action was undefended, the FtT had acted outside of its legal duty in seeking to open the question of the validity of the agreement.

The appeal was heard by Upper Tribunal Judge Pino Di Emidio. Tosh, advocate, made written submissions for the appellant, and no appearance was made by the respondent.

Pars judicis

The respondent had granted a personal guarantee relating to a private residential tenancy of a property in Dundee under which the appellant was the landlord. The tenant subsequently accrued rent arrears, which led to the appellant seeking to enforce the terms of the guarantee against the respondent.

The document purported to be the guarantee, which appeared to be based on an English model, was determined by the First-tier Tribunal to be a traditional document within the meaning of the Requirements of Writing (Scotland) Act 1995. However, only the respondent had signed the document, and only on page 5 of 6, which otherwise consisted solely of blank headed notepaper from the appellant’s letting agent. The Tribunal therefore determined that it had not been signed in accordance with the requirements of the 1995 Act, and further that it was not an enforceable contract.

It was submitted for the appellant that the FtT had not been entitled to inquire into the question of the validity of the guarantee where the action was undefended. Prior to the transfer of jurisdiction to the FtT it would not have been pars judicis for a sheriff to have declined to grant decree even if they had concerns about the validity or enforceability, and this same restriction continued to apply.

The written submissions further noted that the Sheriff Appeal Court in Cabot Financial UK v McGregor (2018) considered that, while an undefended ordinary cause action could be dismissed if the action was incompetent or there was a patent defect in jurisdiction, relevancy and specification were matters to be raised by the defender. The court’s active role in controlling how cases progressed should not extend the court’s inherent jurisdiction.

No wider than previously

Judge Di Emidio, in his decision, observed: “Prior to the transfer of jurisdiction the sheriff would not have had power to interfere on the basis of lack of relevancy in undefended proceedings. The power transferred to the First-tier Tribunal by statute was no wider than that which was previously exercised by the sheriff. Therefore when the First-tier Tribunal purported to determine these undefended proceedings on the ground of relevancy it erred in law.”

Turning to the alternate grounds of appeal, he continued: “The appellant is well founded in submitting that the approach of the First-tier Tribunal to section 1(3) and (4) of the 1995 Act contained an error of law because the First-tier Tribunal had made findings of fact to the effect that the guarantee stated on its face that it was onerous in nature. It followed that the appellant acted in reliance on the guarantee, was affected to a material extent by entering into the tenancy and would be affected to a material extent if the respondent was permitted to withdraw from it.”

Addressing the appropriate procedure, Judge Di Emidio concluded: “This Tribunal is satisfied that the first ground of appeal is well founded in law and that the appeal should be granted. Therefore the decision of the First-tier Tribunal will be quashed. This Tribunal can re-make the decision in terms of section 48(2) (a) of the Tribunals (Scotland) Act 2014 and do anything that the First-tier Tribunal could do if re-making the decision. In the circumstances there is nothing to be gained by remitting the case to the First-tier Tribunal as this was an undefended application which raised no point of competency. Therefore the order for payment sought by the appellant will be granted.”

He added in postscript: “The frustration of the First-tier Tribunal at the unsatisfactory state of the document of guarantee relied on by the appellant is understandable. It was unsatisfactory in a number of respects. However the First-tier Tribunal went too far in seeking to intervene on grounds of relevancy.”

The Upper Tribunal therefore quashed the decision of the First-tier Tribunal and made an order for payment by the respondent of the sum of £6,237.21 with interest.