Effective registration
Section 91 – Effective registration of statutory pledge
374.Subsection (1) sets out three cases in which a purported registration of a statutory pledge in the statutory pledges record is ineffective, with the result that the statutory pledge is not created—
The first case is that the entry does not include a copy of the constitutive document.
The second case is that the entry contains an inaccuracy which, as at the time of registration is “
seriously misleading ” (for which see section 94(1)).The third case is that the constitutive document is invalid, for example because it is a forgery.
375.As such, it is crucial that the constitutive document is included in the entry (and is valid). If anything else is missing from the entry, the registration will still be effective unless the entry is considered seriously misleading by reason of the omission (i.e. the second case cited above applies, under which missing or incorrect text can lead to the entry being considered seriously misleading).
376.The effect of determining whether or not an entry is seriously misleading as at the time of registration is that a supervening inaccuracy will not render ineffective the creation of the pledge which took place by reason of the registration (although see section 93 of the Act as to other consequences).
377.Subsection (2) makes subsection (1) subject to section 94(1)(c) and (d), with the effect that a registration may be partially effective as regards the encumbered property or as regards co-providers or co-secured creditors.
378.Subsection (3) enables an ineffective registration to become effective by means of a correction. The effect of this provision, when read with section 101(3) of the Act, is that the registration becomes effective (and the pledge is created) on the date of the correction.
Section 92 – Effective registration of amendment to statutory pledge
379.This section makes the same provision for the registration of an amendment of a statutory pledge as section 91 of the Act makes for the registration of the pledge. See paragraphs 374 to 378 of these Notes.
380.See also section 88 (in relation to when an amendment, as opposed to a correction, may be registered) and section 58(6) and (7) (in relation to when such amendments take effect).
Section 93 – Supervening inaccuracies: protection of third parties
381.This section protects a person who for value, in good faith and exercising reasonable care acquires encumbered property, or a right in encumbered property, in circumstances where there was previously an effective registration under which the pledge was created but, at the time of acquisition:
the entry has been incorrectly removed from the record,
in a case where the acquired property does not have an identifying number which must be used, the entry has become seriously misleading in respect of the acquired property, or
in a case where the acquired property does have an identifying number which must be used, a search of the record for that number would not produce the entry.
382.This provision could therefore cover register malfunctions under which entries were incorrectly removed or search results were not producing the correct results. It could also apply where, for example, the provider marries after the pledge is registered and changes their name.
383.The effect of this section is that the pledge will be extinguished as regards the acquired property.
Example
In year 1, Rachel Smith grants a statutory pledge to Mark over her piano. Mark registers the pledge and the piano becomes encumbered property. In year 2, Rachel marries and changes her name to Rachel Jones. In year 3, Rachel sells the piano to Luke without obtaining Mark’s permission under section 51. However, Luke is in good faith, and does not know that Rachel Jones was once known as Rachel Smith. A search against Rachel Jones will not reveal the pledge, and so he will acquire the piano unencumbered by the pledge.
In contrast, if Rachel had chosen not to change her name upon marrying, a search against her would continue to reveal the pledge. There would be no supervening inaccuracy so this section would not be relevant because there would be no error to mislead Luke. However, if Luke did not search the register, he might still benefit from protection under section 53 (if Rachel is a sole trader whose business is selling musical instruments) or section 54 (if he is buying the piano in good faith for personal purposes and the value is below any cap introduced under that section).
384.The protection offered by section 93 makes different provision in respect of encumbered property that is required by RSP Rules to be identified by an identifying number, such as a vehicle identity number (VIN). Any person intending to acquire such an asset could readily obtain information about the pledge by searching the statutory pledges record against the VIN. The expectation is that where the use of such numbers is mandated, they should be the primary means of searching as they ought to be the most reliable. As such a number would not change, it would not be the subject of a supervening inaccuracy unless the register malfunctioned (and any initial inaccuracy would be seriously misleading under section 94, meaning that no pledge was created over it).
385.There are a number of things a person could do to satisfy the section’s requirements to be in good faith and to take reasonable care. However, if they have failed to carry out a search of the register in respect of their purchase then they will not meet this test. The inaccuracy will have been irrelevant to their decision to purchase if they did not consult the register. This does not mean, though, that consulting the register will always be enough on its own. If the person has reason to be suspicious of the information on the register, they might be expected to make further enquiries.
Section 94 – Seriously misleading inaccuracies in the statutory pledges record
386.This section makes provision as to whether an entry in the statutory pledges record is seriously misleading as a result of an inaccuracy or inaccuracies in it. This applies for determining whether a registration is an effective registration for the purposes of sections 91, 92 and 93 of the Act. Section 101(1) of the Act provides for the meaning of “inaccuracy” in the statutory pledges record.
387.Subsection (1)(a) of section 94 provides that an inaccuracy will be seriously misleading if any of subsections (2) to (6) apply or if, despite none of them applying, the inaccuracy or inaccuracies are such that a reasonable person would be seriously misled by the entry. In other words, if any of the examples in subsections (2) to (6) apply then the inaccuracy will be seriously misleading (whether or not any person was actually misled), but those examples are not exhaustive and there may be other inaccuracies that are found by the courts to be seriously misleading. Whether such an inaccuracy is seriously misleading or not is to be determined objectively.
388.Subsection (1)(b) provides that any inaccuracy is to be disregarded to the extent that it appears in the constitutive or amendment document but is not replicated elsewhere in the entry. The effect is that the person searching the record does not have to look at the document to determine whether the details in the record are seriously misleading (although a copy of the constitutive document – and, if applicable, any amendment document – must still be part of the entry in the statutory pledges record and can, for instance, be used as evidence to show that the entry itself was inaccurate).
389.Subsections (1)(c) and (d) deal with an inaccuracy that relates only to part of the encumbered property, or to one co-provider or co-secured creditor. These provisions have the effect that an inaccuracy in the statutory pledges record may be seriously misleading in that respect only, and therefore the registration of the statutory pledge, or amendment to the statutory pledge, will be partly effective.
390.Subsections (2) and (3) focus on whether an entry contains an inaccuracy that prevents it being disclosed by a properly formatted search. Such an inaccuracy will generally be regarded as being seriously misleading.
391.Subsection (2) has the effect that an entry is seriously misleading where the provider (or co-provider) is a person required by RSP rules to be identified in the statutory pledges record by an identifying number (e.g. a company is likely to be required to be identified by their company number) and where, if a search of the record were to be carried out for that number using the search facility provided under section 104 of the Act, it would not disclose the entry. However, it does not matter if the company’s name is wrong as the expectation is that it should be searched for by reference to its number (which will not change in the way that its name might).
392.Subsection (3) has the effect that an entry is seriously misleading where the provider (or co-provider) is not a person required by RSP rules to be identified in the statutory pledges record by an identifying number and where, if a search of the record were to be carried out for the provider’s proper name, or their name together with their month and year of birth it would not disclose the entry. This means that even if the search function is programmed to be more forgiving of errors in names if the month and year of birth are also included in the search (and are correct), the entry will still be seriously misleading because it ought to be possible to find the entry by the name alone. However, it is not enough for the name to be correct; if it is correct but the month/year of birth is wrong, this will also be seriously misleading.
393.Subsection (4) has the effect that an entry is seriously misleading for the purposes of an initial registration (whether of a pledge or an amendment) where the name of the secured creditor (or co-secured creditor) at the date of application is incorrectly reflected in such a way that a reasonable person would be seriously misled. Because it will not be possible to search by secured creditor under section 104 (unless RSP Rules alter the position), the position is not determined by reference to whether a search result would return the entry. The application of the reasonable person test means that minor errors such as typos might be disregarded, particularly if other information is correct, but the position will be viewed as a whole in the circumstances of each case. In light of the fact that it is permissible for assignations to take place off-register and given that for the purpose of section 93 what will be of interest to a purchaser is simply whether the property is secured, not who benefits from the security, this provision is limited so as to not cover supervening inaccuracies.
394.Subsection (5) applies where the encumbered property is or includes property required by RSP rules to be identified in the statutory pledges record by an identifying number and where, if a search of the record were to be carried out for that number, it would not disclose the entry.
395.Subsection (6) applies where there is a requirement, by virtue of section 83(1)(g), for an entry in the statutory pledges record to specify the type of property encumbered and where the entry does not describes the claim as being of a type that it is or fails to allocate a type to the property.
396.Subsection (7) applies the rules in this section to circumstances where there are co-providers and co-secured creditors.
397.Subsection (8) enables the Scottish Ministers to modify this section to make provision about what does, and what does not, make an entry seriously misleading and how that is to be determined.
398.Subsection (9) provides that the proper name of a person means the person’s name in the form by RSP Rules, which might also prescribe a hierarchy of document that could be used to evidence a proper name: for example, a passport, driving licence, or a birth certificate.
