Reduction of a Deed

General

A decree of reduction of a voidable deed is registrable by virtue of section 46A of the Conveyancing (Scotland) Act 1924.

Such a decree is registrable in the Land Register if the deed being reduced relates to a registered plot of land or a lease registered in the Land Register. Such decrees are usually obtained from the Court of Session, but it is also possible for an arbitral award made under the Arbitration (Scotland) Act 2010 to be registrable if it orders reduction of a voidable deed and the deed relates to a registered plot of land or registered lease.

A voidable deed is one which is, at the time of its granting, fully valid, but is nonetheless subject to the possibility that a person raises court action later to render the deed null. A court decree which declares that a particular deed is void is not registrable. Instead such a decree potentially evidences a manifest inaccuracy in the Land Register. There are some examples of when a deed might be void rather than voidable below.

Referral

An application to register a decree of reduction should, once the application has been entered onto the application record, be processed by a senior caseworker who should seek further guidance in any cases of doubt.

Processing an Application for Registration of a Decree of Reduction

In general terms, there are three matters that influence whether and how an application for registration of such a decree can be processed:

1. Is the decree actually for reduction of a voidable deed?

A distinction needs to be made between such a decree and a decree which effectively declares that a deed was void. A deed which is void has always been of no effect: where a decree evidences that a registered deed is void then in general terms registration of such a decree is not appropriate. It may be that rectification of the land register is required and that registration cannot proceed. If the decree declares a deed to be void then that decree is not registrable and the application would require to be rejected, and the matter passed to the Post Registration Enquiries Team to assess if rectification can proceed.

Registration officers should bear in mind that a voidable deed can be registered and has effect on registration. There is no need to consider limiting or excluding warranty.

If the nature of the decree is unclear and the underlying court papers have not been produced with the application then it is appropriate to requisition a copy of the court documents (which are usually referred to in the order) to supplement the content of the decree and explain its true nature. In a court action the final pleadings are known as the 'closed record'. This sets out each party's requests of the court, each party's arguments and their responses to the other party's arguments.

There is information below about when a deed is considered voidable and could be reduced.

2. Is the effect of the decree "catholic" or "ad hunc effectum"?

A catholic reduction is one that is effective absolutely. This means that if a disposition by A to B is reduced in a catholic manner then A becomes owner again (without conveyance) and B would be removed from the registered title as at the date of registration of the decree. Other entries may require to be removed as a consequence, but see 3. Are there entries on the title sheet(s) after the registration date of the deed being reduced?

In contrast, if a decree of reduction is respect of a disposition by C to D is ad hunc effectum, then the reduction operates only in favour of the person reducing the disposition and does not have effect against all other parties. An inhibiting creditor who has obtained a decree can, following registration, treat the subjects as if the deed had not been recorded/ registered. Usually this will mean that they can then adjudicate, or for a trustee in sequestration reducing a deed in terms of the inhibitory effect of sequestration, proceed with a sale unaffected by the reduced deed.

The key example of a decree of reduction which is ad hunc effectum is decree which is obtained by an inhibiting creditor in respect of a deed which was granted in breach of an inhibition or the inhibitory effect of a sequestration. In such a case, the decree of reduction will usually state that it is granted "ex capite inhibitionis".

Unless a decree specifies that it is catholic or ad hunc effectum then it is not always possible to state in a given situation what the effect of a decree is. In applications not clearly involving a decree obtained by an inhibiting creditor and where the decree and pleadings submitted or requisitioned do not contain such reference, the senior caseworker should seek further advice as to how to proceed.

Where reduction is clearly occurring ex capite inhibitionis and thus the decree of reduction is only ad hunc effectum, the application for registration of the decree is given effect by the entry of a note in the relevant section of the title sheet. See below for information on the form of note that could be used.

3. Are there entries on the title sheet(s) after the registration date of the deed being reduced?

In general terms, a person who acquires a real right:

for value, and
who is acting in good faith,

prior to the date of registration of a decree of reduction of a voidable deed is protected against the effect of a reduction whether it is catholic or ad hunc effectum.

Good faith can sometimes be excluded where, for example, a caveat relating to a decree of reduction is on the title sheet at the time of an application for registration of a deed whose validity is dependent on the voidable deed. (Where a caveat is on a title sheet at the time of an application, a limitation or exclusion of warranty for the applicant in that application may be necessary.)

Where the deed is reduced as a result of it being granted in breach of an inhibition, and the details of the inhibition were set out in the title sheet, it is understood that an acquirer from the grantee of the deed in breach will be unable to claim they were in good faith. It should be rare for an acquirer to choose to take title from a person with such an entry on the title sheet. For example, if a standard security was granted in breach of an inhibition, then a creditor is unlikely to wish to accept an assignation from the original registered creditor of their right in the security.

Typically, a person who intends to raise an action of reduction who notes further entries on a title sheet deriving from the deed they wish to reduce will usually also seek reduction of those deeds to avoid such questions arising.

If the decree does not reduce those later deeds also, then the senior caseworker should seek advice as appropriate from the Policy Unit/Legal Services.

When is a Deed Voidable?

The following are some examples of deeds known to be voidable rather than void. It is not definitive and is provided for information only. If a decree, taken with any information submitted with the application, is unclear then a requisition can be raised to obtain further information.

The deed was granted in breach of an inhibition (or the inhibitory effect of sequestration);
A deed was gratuitous or granted at an undervalue and the granter is sequestrated within a defined statutory period after granting (a gratuitous alienation or an unfair preference);
The transaction might be 'set aside' as an avoidance transaction under the Family Law (Scotland) Act 1985, when there is a claim for aliment or financial provision on divorce;
The deed is executed on behalf of the granter for example by an attorney, but the attorney lacked the powers to enter into the particular deed;
A deed executed by a person acting on behalf of the granter who is in breach of their fiduciary duties - for example a person acting as power of attorney where the deed granted by them was auctor in rem suam;
A deed where granter was induced by fraud to sign the deed (forgery of the granter's signature is however considered void);
The granter of the deed was weak and facile and has been taken advantage of (known as "facility and circumvention") and has been induced to grant the deed.

Some examples of "void" deeds

A disposition granted and executed by a person under 16 (not granted and executed by their parent or guardian);
A deed where the granter's signature is forged;
An a non domino deed (absence of title in the granter - note under the 2012 Act there is a special method of submitting such dispositions under the prescriptive claimants process);
A deed which was purportedly executed by authorised persons for a company but it is found that they had no such authority.

Reduction of Deed in Breach of an Inhibition - Ex Capite Inhibitionis

In general terms, because such a reduction would be ad hunc effectum, the entry for the deed to which the reduction relates is not removed from the title sheet. Rather, a note is added to the title sheet which confirms the details of the court action and the date of registration of the decree. An example note which can be used where a security is reduced at the instance of a trustee in sequestration as a breach of the inhibitory effect of sequestration, is given below.

Example - standard security reduced as breach of inhibitory effect of sequestration

In this case, the note is added to the securities section of the title sheet similar to the following:

"The standard security in Entry....... is reduced at the instance of the AB (design as per the decree) and that ex capite inhibitionis namely of the Certified Copy Interlocutor (Sequestration) recorded in the Register of Inhibitions and Adjudications on 28 April 2014, conform to Interlocutor issued from the Court of Session on 20 April 2015 and registered in the Land Register on 22 April 2015."