Since the economic crisis, there has been an increase in Ireland in the trade of lenders’ rights against borrowers. This has sharpened the focus on the circumstances in which the purchaser of a borrower’s commitment can be substituted as the plaintiff in litigation against that borrower which had commenced before the commitment was sold.
Contested applications for substitution of a plaintiff have become common. However, provided minimum requirements are met and unless very unusual circumstances exist, a court should not refuse a substitution application where the legal basis of the assignment of the exiting plaintiff’s legal interest in the litigation to the new plaintiff is shown. Unlike a sporting substitution, a litigation substitution is not aimed at giving one side a tactical advantage: it is merely ensuring that the correct players are on the field.
In principle, the assignee of a legal right of action against a borrower should, have precisely the same right of action (and, if successful, the same rights of execution or enforcement) as the original lender. This is subject to:
- any restriction in the contract with the borrower on alienation or on enforcement by a successor in title (eg a requirement of borrower consent);
- requirements that the instrument of assignment must be made in writing by the transferor and express notice in writing of the assignment must be given to the debtor,1 and
- a requirement that the transfer is a genuine economic transfer of the assets or rights which are the subject of the litigation rather than just the litigation itself, because trading in litigation remains prohibited in Ireland by the rule against champerty.
Unsurprisingly, the procedural rules of all Irish civil courts allow addition or substitution of a plaintiff or defendant where there has been a lawful change in the entitlement to benefit from, or the obligation to defend, the cause of action.2 Where the right of a party to be substituted cannot seriously be disputed, this usually occurs unopposed and can in certain circumstances occur without notice to the opposing party. The court can allow substitution of a party before or at the trial.
The increasingly common phenomenon of contesting applications for substitution of a plaintiff is curious. In a pre-trial substitution, the court is only permitting the new plaintiff to assert the same claim as its predecessor did. It is making no finding of entitlement to relief. The defendant’s ability to assert at the trial that the plaintiff now pursuing the case is not entitled to the relief claimed against him is undiminished. Logically, if the defendant believes that the wrong person has been substituted as plaintiff, he should remain silent until it is too late for the mistake to be corrected.
An application to substitute should therefore not require a high level of proof. This is reflected in a recent High Court judgment3 which, despite objections by the borrower defendant, allowed an appeal from a Circuit Court order refusing to substitute a plaintiff.
Having found that the threshold for substituting a party under the relevant Circuit Court rule is “very low indeed”, the High Court noted that the application was one the plaintiff might “not unreasonably, have expected would be a fairly straightforward process” and it “might be contended ….that it was contemplated that an order such as that now sought would not lightly be refused.”
The Circuit Court proceedings were begun in 2010 and the original plaintiff (among others) entered a “Receivables Sales Agreement” with the intended new plaintiff in November 2012. The defendant received written notice of the assignment in January 2013.
The High Court took some issue with the sufficiency of the plaintiff’s affidavit to establish the assignment of the defendant’s commitment to the new plaintiff. It directed the exiting plaintiff to file a further affidavit walking through the definitions in the agreement to get from the defendant’s commitment to the point of sale; confirming that the agreement had been executed (and when) and confirming that completion of the sale and purchase had occurred. The court agreed to allow substitution provided such an affidavit was produced.
This outcome sensibly reflects the underlying principles. Substituting a new plaintiff does not involve any finding of liability. It merely reflects that the old or new plaintiff has persuaded the court that the new plaintiff has now become entitled to pursue the claim the old plaintiff previously made. Whether the claim can be proved by evidence is a matter for another occasion – the trial. Therefore, absent very unusual circumstances around the assignment, it is difficult to see how a court can properly refuse a substitution application where the legal basis of the assignment to the new plaintiff of the exiting plaintiff’s legal interest in the litigation is clearly established in an affidavit grounding the substitution application.