Freeman V Bank of Scotland plc, Simon Davidson and Lloyd Daly & Associates Ltd [2016] IESC 14

This Supreme Court decision is as a result of an appeal from a judgment of McGovern J in the High Court which was delivered on 29th May 2014.

Background

This matter concerned a husband and wife who had purchased 6 investment properties (the Properties) between 1996 and 2006.  The purchase of the Properties was financed by First Active Building Society and later refinanced with Bank of Scotland (Ireland) Limited (BOSI).  The assets of BOSI were transferred to Bank of Scotland plc in December 2010 (the Bank) by way of a cross-border merger.  The Bank sought to appoint a receiver over the Properties in November 2011 after the Appellants had defaulted in their repayment obligations.  

Arguments put forward by the Appellants in the High Court included that (i) due to the securitisation of certain of the mortgages, the Bank was not entitled to maintain a claim against the plaintiff in relation to the loans or security or to appoint a receiver over the Properties; and (ii) having regard to Section 64 and 90 of the Registration of Title Act 1964 (the 1964 Act), as the Bank was not the registered owner of the charges (which were still registered in the name of BOSI), the appointment of the receiver by the Bank was invalid.

McGovern J in the High Court determined that the Appellants had, in their loan documentation, consented to the securitisation and dismissed the argument that that the securitisation of the loans affected the Bank's right to appoint a receiver and also determined that as the legal title to the Properties had passed to the Bank from BOSI as a result of the cross-border merger, the Bank was entitled to rely on its contractual right to appoint a receiver.

Appeal

During the appeal, Counsel for the Appellants argued that the sole issue in this case was the validity of the appointment of the Receiver and in doing so, relied heavily on the decision in Kavanagh V McLaughlin [2015] IESC 27, in which the Supreme Court confirmed that the cross-border merger of BOSI to Bank of Scotland plc had the effect of validly transferring BOSI's loan contracts and underlying loan security to Bank of Scotland plc.

Laffoy J also issued a judgment in Kavanagh V McLaughlin in which she queried how a receiver could make good title to a property for the purposes of a sale or how a bank could exercise its power of sale and give good title without being registered as owner of the property as is required under the 1964 Act.

Referring to Laffoy J's judgment, Counsel for the Appellants pointed out that four of the Properties had already been sold by the Receiver and that the purchasers had been registered as owners of those properties with the Property Registration Authority (PRA).  Counsel further argued, for the first time, that the sale of those properties could potentially give rise to a liability on the part of the Appellants to the purchasers as the Receiver is the agent of the mortgagors.  As such a potential liability was never envisaged by the Appellants as mortgagors under the charging documents, the charge was void or non est factum and the appointment of the Receiver was invalid.

In reliance on precedent caselaw, Ms Justice Dunne noted that the non-registration of a bank as owner of a charge does not prevent a subsequent purchaser of a property, from a bank appointed receiver, from obtaining an estate or interest which is valid against the owner of the charge.

Ms Justice Dunne dismissed the Appellants argument and stated that she found "it impossible to see how the possible potential difficultly in conferring good title on the transaferees can in any way invalidate the appointment of the Receiver or the validity of the Charge".  Ms Justice Dunne also acknowledged that although there may be a "blot" on a transferee's title, this would not benefit the Appellants and noted that if a transferree has an issue with title, recourse is to the Bank and the receiver.  Any suggestion that the remote possibility of a transferee claiming liability against the Appellents as a result of this "blot" would have the effect of rendering the charge void or "non est factum" was not credible.

The appeal was dismissed.