In a recent challenge to the appointment of a Receiver, the High Court was asked to consider the validity of a Deed of Appointment and whether it complied with the bank’s own mortgage deed. The Court found that failing to comply with the format set down in the mortgage deed can have drastic consequences.
Details of the case
- Following the default by a borrower of his loan facilities, ACC appointed a Receiver over the secured assets. Shortly after the Receiver’s appointment, a conflict of interest arose and a Deed of Discharge was executed and a different Receiver was appointed on the same date. The borrower alleges he was never made aware that the first Receiver was discharged and replaced with a second Receiver.
- The second Receiver commenced injunction proceedings and obtained an interlocutory order granting him possession of the charged property. The full hearing was subsequently heard by the Court some 12 months later.
- The borrower appointed Mr Ben Gilroy as his power of attorney. Mr Gilroy attended at the offices of Receiver’s solicitor to inspect the original Deed of Appointment as he wanted to compare it to the mortgages to ensure it was valid. He believed that the deed was invalid and wrote to the Receiver advising of this. However, this assertion was rejected by the Receiver.
- Mr Justice Cregan examined the Deeds of Appointment of both Receivers and the Deed of Discharge. The Deed of Appointment was made under seal whereas the mortgage deed simply provides that such appointments should be by way of signature.
- The Court reviewed the bank’s internal authority for executing Deeds of Appointment and noted that six different people were authorised to witness the affixing of the seal. However, only three people were authorised to sign documents on behalf of the bank, being the CEO, the secretary and the law agent. The Deeds of Appointment in this case were not signed by one of those three authorised signatories.
- The Court reviewed the legal principles set out by Gilligan J in Merrow Ltd v Bank of Scotland & Anor  IEHC 130 which included the observation that the formalities set out in the security instrument must be “scrupulously followed”, and if deviated from, the appointment will be a nullity and the purported Receiver will be a trespasser.
- The Court was satisfied that where the appointment of a Receiver is challenged, the bank must establish that his appointment was in “exact compliance” with the terms of the mortgage. The bank’s argument that an appointment under seal also constitutes an appointment by way of signature was rejected.
- The Court concluded that the appointment of the first Receiver, his subsequent discharge and the appointment of the second Receiver were invalid. It found that the borrower was entitled to damages for trespass to his property. In addition, the Plaintiff may be entitled to damages as the interlocutory injunction was improperly granted.
This case serves as a stark reminder that proper procedures must be followed when appointing a Receiver or executing any document to ensure it is in compliance with the security documents. The consequences for getting it wrong can be serious.
Paul McCleary v Paul McPhillips
Paul McPhillips v ACC Loan Management Ltd formerly ACC Bank Plc, Grant Thornton International Limited trading as Grant Thornton Ireland, Stephen Tennant, Paul McCleary, Declan Kavanagh and Jack McCann
The High Court, unreported 31 July 2015