Tom Kavanagh & Bank of Scotland plc - and - Patrick McLaughlin & Roseann McLaughlin [2015]

The Supreme Court recently unanimously dismissed an appeal by Patrick McLaughlin and Roseann McLaughlin (together theMcLaughlins) against the appointment of receiver, Tom Kavanagh, and a declaration that Bank of Scotland plc (BOS) was entitled to recover debts of over €4million. 

The McLaughlin's had various facility arrangements with Bank of Scotland Ireland Limited (BOSI).  Security held by BOSI from the McLaughlin's included the following:

  • A deed of mortgage and charge dated 18 July 2005 in respect of a property known as "Latona", the title to which was unregistered (the 2005 Charge); and
  • A deed of mortgage and charge dated 31 March 2006 in respect of a property known as 40 Kerrymount Rise, the title to which was registered (the 2006 Charge) (together the Security).

The key issues were addressed in two separate judgments as follows:

  1. Did the cross-border merger of BOSI to BOS which transferred the assets and liabilities of BOSI to BOS on 31 December 2010 (and after which BOSI was dissolved) have the effect of transferring the Security to BOS?   
  2. If yes and the Security did pass to BOS from BOSI, as BOS was not registered as owner of the 2006 Charge in the Land Registry, did BOS have the authority to appoint a receiver?

Cross-Border Merger and the definition of "Assets"

The McLaughlin's argued that the Security did not constitute an "asset" within the meaning of the European Communities (Cross-Border Mergers) Regulations 2008 (the Irish Regulations).

In his judgment, Mr Justice Clarke referred to the ordinary meaning of the term "asset" in the context of a company and stated that it must refer to any element of a company's business that has the potential to confer value.  When considering the value of a loan, the existence of security would have a significant effect on that valuation. 

In addition, in order for the Irish Regulations to specifically exclude "security" from the definition of "assets", this would require clear wording in the body of the legislation.  Mr Justice Clarke concluded that the term "assets" must be interpreted in accordance with the purpose of the Cross-Border Merger Directive as a whole.  The McLaughlin's appeal under this heading was therefore dismissed.

Requirement to be registered as owner of a charge in order to appoint a Receiver

In her judgment, Ms Justice Laffoy noted that the Court only had to determine the registration of title issue insofar as it affected the appointment of the Receiver by BOS.  Ms Justice Laffoy was satisfied that the Receiver was validly appointed under the terms of the 2006 Charge as a matter of contract.  The fact that BOS was not registered as the owner of the 2006 Charge did not affect its contractual power to appoint the Receiver.

However, Ms Justice Laffoy queried whether or not BOS could enforce the securities which had transferred to it from BOSI, by operation of law, without having to take further action and having regard to the provisions of Irish law and the location of the assets. More specifically, with regard to the 2006 Charge and the provisions of the Registration of Title Act 1964 (the 1964 Act), Ms Justice Laffoy queried how BOS could exercise its power of sale and give good title without being registered as owner of the charge?

  • The key mandatory provisions of Section 62 of the 1964 Act were examined as follows: Section 62(2): "until the owner of the charge is registered as such, the instrument shall not confer on the owner of the charge any interest in land";and   
  • Section 62(6) "… the registered owner of the charge shall, for the purpose of enforcing his charge, have all the rights and powers of a mortgagee by deed, including the power to sell the estate or interest which is subject to the charge." (emphasis added)

Ms Justice Laffoy highlighted that the important point is that the "power to enforce a charge" is conferred on "the registered owner of a charge" under the provisions of the 1964 Act.  Ms Justice Laffoy also noted the provisions of Regulation 19 of the Irish Regulations which provided that "the successor company shall comply with the filing requirements and any other special formalities required by law … for the transfer of the assets and liabilities of the transferor companies to be effective in relation to other parties".  In this case, as BOS had not applied to be substituted in place of BOSI on the relevant folios, BOSI (now liquidated) remains the registered owner of the charges on registered land transferred to BOS.

Ms Justice Laffoy noted that in similar transfer schemes such as "Part III of the Central Bank Act 1971" which provides for the transfer of banking business between Irish licensed banks, a transferee of security consisting of charges over registered land is specifically exempted from the statutory obligation to be registered as owner of such charges under the Registration of Title Act 1964.

Ms Justice Laffoy concluded, obiter, that in order to avail of the powers and protections of the 1964 Act, and in the absence of a specific statutory provision to exempt this registration requirement, BOS must be registered as owner of the charge in the Land Registry.