The six month anniversary of the RBS v Wilson case has just passed and the ramifications of the ground breaking Supreme Court decision appear to keep on coming.

The Govan Law Centre have announced that they intend to launch a test case to seek a refund of legal costs charged to customers accounts for Scottish repossession actions where no Calling Up Notices were served prior to the raising of litigation for recovery of a heritable property.

This is clearly a difficult situation as repossession actions raised without service of a Calling Up Notice were, prior to the RBS v Wilson case, permitted by case law. Therefore banks and building societies were incurring these costs while acting in good faith. However the RBS v Wilson case prohibited repossession actions for payment defaults without first serving a Calling Up Notice. Since then, a small number of customers have questioned whether they should be liable for the costs incurred where the actions have been raised incorrectly.

This test case will seek the refund of legal costs already added to the accounts of customers. If successful, this could see significant costs having to be refunded by banks and building societies to defaulting customers. The costs that have been charged to the customers' accounts are typically the full legal costs that have been incurred by the banks and building societies as a result of raising the litigation action. Indemnity for such costs is provided for in standard condition 7 of the standard securities granted by the borrowers. The argument we anticipate that Govan Law Centre will be putting forward is whether the banks and building societies are entitled to recover any costs from the borrowers where the calling up procedure has not been followed. However the rebuttal of this will rest on the fact that the banks and building societies were acting in good faith when they commenced such repossession actions. Further, had it not been for the default of the borrowers in the first instance, actions for repossession would not have been necessary.

Anderson Strathern LLP believes that for any repossession actions that are still ongoing, it is likely that motions for judicial expenses will be granted against the banks. Whether the Govan Law Centre will be successful where a court has already made a decision on costs applied internally is less clear.

The issue of costs for litigation charged to borrowers' accounts will need to monitored closely. There is little doubt that if this test case is successful, it will have significant ramifications for all mortgage lenders.

Further Information

For further information on this matter please contact Andrew Foyle, Senior Associate, Adam Wilkie, Solicitor or your usual contact at Anderson Strathern

This bulletin is for general information only and does not constitute legal, investment or other professional advice. Please contact us should you require advice on any particular legal issue. Anderson Strathern LLP accepts no responsibility for any loss that may arise if reliance is placed on any information or opinions expressed in this bulletin.