HC Deb 11 May 1970 vol 801 cc919-26
Mr. Buchan

I beg to move Amendment No. 29, in page 11, line 21, leave out ` so recorded '.

It would also be convenient if we took, with this Amendment, Amendments Nos. 30, 32, 38 and 39.

Mr. Deputy Speaker

Very well.

Mr. Buchan

The purpose of these Amendments is to extend the provisions of Clause 12 to cover the preference in ranking of a creditor in a standard security, not only where a second security over the same property is notified to him, but also where the property is subsequently assigned or conveyed to a third party.

At present, it provides that where a creditor receives notification of the grant of a second security his preference in ranking is restricted, broadly speaking, first, to security for his present advances and, secondly, to any interest either at present or in the future payable on these, and thirdly to any expenses and outlays. If we were to limit this Clause it would be far too restrictive. It should be exactly the same preference where the property is assigned or conveyed to a third party.

Amendment agreed to.

Further Amendment made: No. 30, in page 11, line 22, after ' thereof,', insert ' or of the subsequent assignation or conveyance of that interest in whole or in part, being a security, assignation or conveyance so recorded.'.—[Mr. Buchan.]

Mr. Wylie

I beg to move Amendment No. 31, in page 11, line 22, leave out ' that and insert ' the prior '.

This is purely a drafting Amendment. Clause 12(1) has become very complicated as a result of the Amendments we have been considering. They were necessary, but it is rather difficult to follow now. It begins with the words: Where the creditor in a standard security duly recorded has received notice of the creation of a subsequent security… Then we go on to deal with the Amendments which cover a few lines and come to the preference in ranking of the security of that creditor ". That is clearly a reference to the creditor to whom reference is made in the opening line, but it seems that it would read more easily if there were a reference to the prior creditor in relation to the subsequent creditor. Everyone would know exactly what we were talking about. I do not suggest that it is essential and it may be a matter of opinion whether it is an improvement.

Mr. Buchan

I would like to help the hon. and learned Gentleman. I recognise that these Amendments have made this awkward. More difficult, however, is the fact that they probably make this Amendment inappropriate. The whole purpose of the previous Amendment was to broaden Clause 12 to apply to the notification not only of the second security, but to the subsequent assignation or conveyance of the security.

In the latter type of case there would be no second creditor. Consequently, it would be inappropriate to refer to a prior creditor. I understand the point which the hon. and learned Member makes, but the Amendment has become inappropriate—although I recognise his reasons for having put it on the Notice Paper. I hope that he will withdraw it.

Mr. Wylie

I think that what the Minister said is right. The effect of one Government Amendment is to involve assignations and that introduces complication. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 32, in page 11, line 23, leave out from beginning of line to ' shall '.—[Mr. Buchan.]

Mr. Wylie

I beg to move Amendment No. 33, in page 11, line 24, leave out ' his present '.

Mr. Deputy-Speaker

With this Amendment we shall consider Amendment No. 34, in page 11, line 24, after first ' advances ', insert: ' already made when the notice was received, or up to the limit of such advances when the security is in respect of a fluctuating loan and repayments with consequent advances are made after receipt of the notice '.

Mr. Wylie

These two Amendments taken together seek to specify in more precise terms what is intended. The use of the words " his present advances " has evoked some criticism in certain quarters, although I do not know whether the W.S. Society was involved in them. Observations were made on the use of that rather loose language. To some extent the Amendments attempt to make clear what is intended by using the words advances already made when the notice was received … An Amendment along those lines was considered in Committee.

Amendment No. 34 deals with another matter which has since been drawn to my attention. It is self-explanatory. It relates to a situation in which the security is in respect of a loan when a repayment of that loan is made subsequent to the later notification. In that situation the security would cover only the balance of the loan outstanding. If any further advance on loan were made following the repayment, that would not be covered by a prior security.

The terms of Amendment No. 34 spell out the point, but we are not expert draftsmen and the Amendment may have technical weaknesses. That is the situation which the second part of Amendment No. 34 seeks to meet on a point which has been brought to my attention since the Committee stage.

Mr. Buchan

This is a difficult point. The principle of the Clause is correct—that a first creditor's preference should be restricted to his present advances. That is necessary for the protection, for example, of a second creditor and thereby to ensure that alternative credit facilities are available to all borrowers. The only case in which an exception could possibly be considered is that of continuing accounts run mainly, if not exclusively, by banks.

The Amendment is too wide for this limited exception because it would cover not only the operation of a current account but also a genuine second loan by the first creditor where the initial debt has been reduced by repayment. It would be a very difficult Amendment to draft narrowly unless we made a special excep- tion in favour of banks, which would be unacceptable for other reasons. After all, it is undesirable to distinguish between creditors in this field.

In any case, we do not think that a special exception for continuing bank accounts is justified. Under the Bill it will be necessary for the first lender—in this case the bank—to obtain the agreement of the second lender to the continued operation of a current account, but we think that that is right. It would not be right for the bank alone to dictate what should happen to the current account. The customer's wishes and the rights of the second lender must also he considered. That is why we feel that the Amendment should be resisted.

Clause 12(3)(b) provides for the parties to regulate these matters themselves. It states that nothing in the Clause shall affect any powers of the creditor and debtor in any heritable security to regulate the preference to be enjoyed by creditors in such manner as they may think fit. If the banks, the borrower and the second lender are agreeable, there is nothing to prevent the continued operation of the account, but we do not think that the account should continue to be operable as a matter of course.

I hope that following that explanation, the hon. and learned Member will withdraw the Amendment.

Mr. Wylie

I do not see how the second creditor is being prejudiced. In the situation envisaged in the Amendment there is a present or an outstanding advance in existence at the date of the reception of the notice of the subsequent security. That means that apart from the special case with which the Clause later deals—future advances which he may be required to make under the contract—the preferable position of the first creditor is limited to the amount which is outstanding or which he has advanced at the date on which he receives notice of the subsequent security.

The Amendment seeks to deal with the situation in which there is a fluctuating account when the borrower may repay part of the indebtedness. The debt is therefore reduced by that amount and the extent of the prior security is limited to that amount. To that extent the subsequent creditor is deriving an advantage. But the Amendment seeks to make it possible in those circumstances for the prior creditor to lend back up to the limit of the loan which was outstanding the day he received the notice of the subsequent security—but no further. I do not think that the second creditor would be prejudiced. It would mean merely that his position would not be improved to the extent of the repayment subsequent to the creation of the subsequent security.

I admit that this matter has not been pressed by the societies who have given advice and assistance on the Bill, but I wonder whether the Minister would like to consider it when the Bill reaches another place. It has been raised with me and it seems that there is argument in favour of it.

Mr. Buchan

I will look at the matter again, but there is the difficulty about the amount which has been reduced from the initial permissible borrowing level. The argument is: why should the second creditor be put in an anxious position because the loan is not frozen at that level? For example, the loan may have been up to £1,000 and then reduced to £500, at which point a second creditor emerges. The argument is: why not continue to borrow on the first security up to £1,000?

Mr. Wylie

Back up to £1,000.

Mr. Buchan

It affects the second creditor. The loan was given at a time when the debt had been reduced to £500.

8.30 p.m.

Mr. Wylie

No. I cannot have made myself clear. I envisage a situation in which an advance has been made by a creditor and he has security over that advance. Along comes a second loan and a second creditor and a notice is made intimating the existence of a second security. The Clause says, " Right. In that situation, the first creditor's prior security will be limited not to the extent of the loan which he might have made, but only to the extent of the loan he has in fact made." He has made an advance of, say, £1,000 although the obligation was up to £1,500, but at the time of the second security he had advanced only £1,000.

There is a special situation, with which the Clause goes on to deal, where there is an obligation under the contract to make further advances, and those further advances are covered by the provisions of subsection (1). In the ordinary situation which I envisage, however, the actual loan—his present advance—was limited to £1,000 and the prior security is restricted to that amount.

What, then, about the situation where the lender repays £500 of that? The prior security then is effective only over £500, and to that extent the second creditor is deriving an advantage. What is suggested in the Amendment is that in that situation it should be possible for the lender, on a fluctuating account, to re-advance or make a further advance following the repayment in certain circumstances, where appropriate, up to but no further than the £1,000 which was the actual amount secured by the prior security at the date the second security was intimated.

That is the point, although probably I have not expressed it clearly.

Mr. Buchan

I understood the point made by the hon. and learned Gentleman and I do not think that we are talking about different things. I still think that I was right in what I said in my second intervention. Nothing that the hon. and learned Gentleman has added has altered that view.

However, I was about to say that I will look at it. We may exchange letters on this. Clearly, this is not a matter which we can sort out backwards and forwards across the Dispatch Box in a full and crowded House. If, therefore, the hon. and learned Gentleman seeks leave to withdraw his Amendment, we will see whether there is merit in it as it stands or whether further consideration should be given to it before the Bill goes to another place.

Mr. Wylie

I am obliged. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Buchan

I beg to move Amendment No. 35, in page 11, line 28, after outlays ', insert ' (including interest thereon) '.

Mr. Deputy Speaker

With this Amendment we can take also Amendment No. 36, in page 11, line 28, after ` outlays ', insert: ' including interest on such expenses and outlays '.

Mr. Buchan

Once or twice earlier when we were not engaged in political knockabout, we became technically objective. We have come to the same kind of Amendment.

I think that the Government Amendment No. 35 is rather neater. It uses three words, whereas the Opposition Amendment, No. 36, uses six. Otherwise, there is not very much to choose between them, as I hope the hon. and learned Gentleman will accept. Secondly, our Amendment is more consistent with other elements in the Bill. For example, the hon. and learned Gentleman in Committee drew attention to a similar reference in standard condition 7(3): All expenses and charges (including any interest thereon)". Our Amendment is more consistently in line with that.

Mr. Wylie

I think that the Minister is right. We discussed this question in Committee. The only reason why I put down the words including interest in such expenses and outlays was that I wondered whether the Government Amendment would include interest on expenses. It would make the clause read: and for any expenses for outlays (including interest thereon)". On what? There is a disjunctive between " expenses " and " outlays ".

I assume that what the hon. Gentleman intends to do is to provide interest on expenses as well as on outlays. When I was drafting my Amendment I assumed that it would probably be desirable specifically to cover interest on both expenses and outlays in this way in view of the effect of the disjunctive.

Standard condition 7(3) is rather different: All expenses and charges (including any interest thereon)". It is rather different where one has the conjunctive. " Interest " clearly governs both, but I wonder whether " interest thereon " would be construed as confined to outlays and not expenses or outlays. That is the only difference between the two Amendments.

Amendment agreed to.

Mr. Buchan

I beg to move Amendment No. 37, in page 11, line 30, leave out first ' the ' and insert ' any '.

Again, this is simply a drafting Amendment. The purpose is to make it clear that the expression the deed expressing the security means any deed for that purpose. Both the Society of Writers to the Signet and the Building Societies Association drew attention to the fact that the provisions about the exercise of a creditor's powers might be included in a building society's rules. We therefore drafted the Bill with that in mind, but I think that the substitution of " any " makes it a little clearer.

The hon. and learned Gentleman moved a similar Amendment in Committee, but withdrew it following discussion. In the event, as we believed that this formula was the most satisfactory way to deal with the point, we used it.

Amendment agreed to.

Further Amendments made: No. 38, in page 11, line 33, leave out from ` have ' to ' in ' in line 36 and insert:

' had any notice referred to in that subsection, by reason only of the subsequent recording of the relevant deed '.

No. 39, in page 11, line 37, leave out from ' any ' to ' shall ' in line 39 and insert: 'assignation, conveyance or vesting in favour of or in any other person of the interest of the debtor in the security subjects or in any part thereof resulting from any judicial decree, or otherwise by operation of law,'.—[Mr. Buchan.],

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