A recent Supreme Court decision looked at the effect of non-registration of the change of ownership of a charge on its enforcement.  

The Freemans had mortgaged a number of properties with Bank of Scotland Ireland ("BOSI"). In 2010 BOSI merged with its parent, Bank of Scotland PLC ("BOS") by way of a cross border merger and all its assets transferred to BOS, including the Freemans’ charge. The Freemans defaulted on their payments under the charge and a receiver was appointed by BOS over their properties in order to sell them. At the time the receiver was appointed, BOSI was still the registered owner of the charge in the Land Registry despite the cross border merger. 

The Freemans challenged the validity of the receiver’s appointment in the High Court. One of the arguments put forward by the Freemans was that the receiver was not validly appointed, as BOSI was still the registered owner of the charge. Section 62(6) of the Registration of title Act 1964, as amended, provides that:

“On registration of the owner of a charge on land . . . the registered owner of the charge shall, for the purpose of enforcing his charge, have all the rights and powers of a mortgagee under a legal mortgage, including the power to sell the estate or interest which is subject to the charge.”

The High Court dismissed the Freemans’ claim. The Freeman’s appealed to the Supreme Court relying on the earlier case of Kavanagh v. McLaughlin.

Decision in Kavanagh v McLaughlin

The decision of the Supreme Court in Kavanagh v. McLaughlin which also dealt with the cross border merger of BOSI and BOS confirmed that the cross-border merger had the effect of transferring by operation of law the charge held by BOSI to BOS.

The Supreme Court decision in Kavanagh v. McLaughlin also confirmed that non-registration of a charge in the name of the transferee under a cross-border merger did not invalidate the appointment of a receiver by the transferee. However, there was an outstanding question following the Kavanagh v. McLaughlin judgment as to whether BOS, or the receiver, could effectively exercise a power of sale and give good title to a purchaser without being registered as owner of the charge. This unanswered question was addressed by the Supreme Court in the Freeman case.

Conclusion of Supreme Court in Freeman & Freeman v Bank of Scotland plc & Ors

The Freemans argued that as BOS had not been registered as owner of the charge, the receiver could not convey good title to the purchasers and the purchasers could face difficulty in registering their title. The Freeman’s argued that this exposed them to a potential liability to the purchasers and, as this was never contemplated at the time of entering into the mortgage, the mortgage was void and the receiver’s appointment invalid.

The Supreme Court confirmed that BOS would need to be registered as owner of the security before it, or a receiver appointed by it, could convey good title to purchaser. However, the Freemans could not benefit from any failures by BOS to take the required procedural steps.

The judgment also determined that:

  • non-registration of a charge over registered land does not prevent a purchaser of the land obtaining an interest that is valid against the owner of the charge; but
  • there would be a difficulty with such a purchaser registering their title until the charge is dealt with.

Freeman & Freeman v Bank of Scotland plc & Ors [2016] IESC 14