Freeman v Bank of Scotland Plc

• Jurisdiction: Ireland
• Judge: Ms. Justice Dunne
• Judgment Date: 15 March 2016
• Neutral Citation: [2016] IESC 14
• Court: Supreme Court
• Docket Number: [Appeal No. 292/2014]
• Date: 15 March 2016

Dunne J.

Charleton J.

O'Malley J.

BETWEEN

ANTHONY FREEMAN

AND

MIRIAM FREEMAN

PLAINTIFFS/APPELLANTS

AND

BANK OF SCOTLAND PLC, SIMON DAVIDSON

AND

LLYOD DALY & ASSOCIATES LIMITED

DEFENDANTS/RESPONDENTS

[2016] IESC 14

Dunne J.

[Appeal No. 292/2014]

THE SUPREME COURT

Banking and finance ? Appointment of receiver ? Validity ? Appellant seeking to invalidate the appointment of a receiver ? Whether potential difficulty in conferring good title on the transferees invalidates the appointment of the receiver

Facts: The plaintiffs/appellants, Mr and Mrs Freeman, between 1996 and 2006, purchased six investment properties with finance provided by First Active Building Society. By way of security for the finance provided, the appellants entered into mortgages in favour of the Society. In 2006 the appellants refinanced their borrowings with the Society by means of a loan from the first defendant/respondent, the Bank of Scotland (Ireland) Ltd (BOSI). The six investment properties were re?mortgaged with BOSI as security for the sum of ?1,406,000 approximately provided by BOSI. The borrowings of the appellants with the Society amounted to approximately ?800,000 at that time and that sum was discharged on the refinancing of their borrowings with BOSI. Following the discharge of their borrowings with the Society, a surplus of ?600,000 approximately was released to the appellants. By deed of mortgage and charge dated the 5th January 2007 the appellants granted a first legal charge over the property. In December, 2010, BOSI was the subject of a cross?border merger with Bank of Scotland Plc by virtue of which all the assets and liabilities of BOSI transferred to the Bank. The appellants defaulted on the loan facilities granted to them by BOSI and failed to repay the sums due when demanded. In November, 2011, the second respondent, Mr Davidson, was appointed by the Bank as receiver over the properties of the appellants. The third respondent, Llyod Daly & Associates Ltd, was appointed to sell the assets comprising of the six properties. In August, 2012, the appellants commenced High Court proceedings in which they sought,?inter alia, to invalidate the appointment of the receiver. The respondents brought an application to dismiss the appellants? claim as frivolous, vexatious and bound to fail. On 29th May, 2014 the High Court (McGovern J) dismissed the appellants? claim on the basis that they had failed to prove their case against the respondents on any of the issues before the High Court. The appellants appealed to the Supreme Court against that judgment, relying on Kavanagh and Bank of Scotland Plc v McLaughlin & Anor [2015] IESC 27. They argued that the sale of the properties could potentially create a liability on the part of the appellants to the purchasers of the properties, given that the receiver is the agent of the mortgagors in accordance with the terms of the charge, in the event of any claim being made by the purchasers because of any deficiency in the title of the purchasers by virtue of the non?registration of the Bank as the owner of the charge. On that basis, it was contended that as such a potential liability was never contemplated by the parties to the charge, the charge is void or?non est factum?and consequently, the appointment of the receiver is invalid.

Held by Dunne J that the possible potential difficulty in conferring good title on the transferees cannot invalidate the appointment of the receiver or the validity of the charge. Dunne J held that the problem that arose by virtue of the non?registration of the charge was one that affected the Bank and potential transferees but not the appellants, citing s. 62 of the Registration of Title Act 1964.

Dunne J held that she would dismiss the appeal.

Appeal dismissed.

Judgment of Ms. Justice Dunne delivered the 15th day of March 2016

Introduction

1 This is an appeal from a judgment of the High Court (McGovern J.) delivered on 29th May, 2014 ( [2014] IEHC 284) wherein the learned High Court judge dismissed the claim brought by the plaintiffs/appellants (?the Appellants?) on the basis that the Appellants had failed to prove their case against the defendants/respondents (?the Respondents?) on any of the issues before the High Court.

Background and procedural history

2 The background to this matter is described in the judgment of the learned trial judge but it would be of assistance to set out the background here. The Appellants are husband and wife. Between 1996 and 2006 they purchased six investment properties with finance provided by First Active Building Society (?the Society?). By way of security for the finance provided, the Appellants entered into mortgages in favour of the Society.

3 In 2006 the Appellants refinanced their borrowings with the Society by means of a loan from Bank of Scotland (Ireland) Limited (?BOSI?). The six investment properties were re-mortgaged with BOSI as security for the sum of ?1,406,000 approximately provided by BOSI. The borrowings of the Appellants with the Society amounted to approximately ?800,000 at that time and that sum was discharged on the refinancing of their borrowings with BOSI. Following the discharge of their borrowings with the Society, a surplus of ?600,000 approximately was released to the Appellants.

4 By deed of mortgage and charge dated the 5th January, 2007 (?the Charge?) the Appellants granted a first legal charge over the property (described in the schedule to the Charge and comprising the six houses at issue in these proceedings) being the land and premises at:

(1) 52, Huntstown Drive, Blanchardstown, Dublin, 15 (Folio 26512F, County Dublin);

(2) 27, Willowood Lawn, Blanchardstown, Dublin, 15 (Folio 61206F, County Dublin);

(3) 55, Huntstown Wood, Blanchardstown, Dublin, 15 (Folio 3413F, County Dublin);

(4) 15, Ventry Drive, Cabra, Dublin 7 (Folio 53190L, County Dublin);

(5) 23, Dunsink Green, Finglas, Dublin 11 (Folio 13478L, County Dublin); and

(6) 1, Drumcliffe Drive, Cabra, Dublin, 7 (Folio 42656F, County Dublin).

5 The loans provided by BOSI were for a period of twenty years and the loans were described as interest only.

6 On the 31st December, 2010, BOSI was the subject of a cross-border merger with Bank of Scotland Plc (?the Bank?) by virtue of which all the assets and liabilities of BOSI transferred to the Bank. The Appellants defaulted on the loan facilities granted to them by BOSI and failed to repay the sums due when demanded. On the 17th November, 2011, the second named respondent (?the Receiver?) was appointed by the Bank as receiver over the above mentioned properties of the Appellants. The third named respondent was appointed to sell the assets comprising of the six properties referred to above.

7 On the 28th August, 2012, the Appellants commenced High Court proceedings in which they sought, inter alia, to invalidate the appointment of the Receiver. The Respondents brought an application to dismiss the Appellants' claim as frivolous, vexatious and bound to fail. The High Court (Gilligan J.) in a judgment delivered on 31st May, 2013 ( [2013] IEHC 371) dismissed the Appellants' claim save for two issues, namely ?the issues raised by the [Appellants] in relation to securitisation and alleged non-compliance with Central Bank codes?. Other heads of claim were struck out and the Appellants were directed to deliver an amended statement of claim. There were various amended statements of claim but for the purposes of these proceedings the relevant statement of claim is that amended pursuant to the order of Gilligan J. referred to above and dated the 21st January, 2014. At that stage the position was that three issues were permitted to go forward by Gilligan J. Those were the issues of securitisation and alleged non-compliance with Central Bank codes as provided for in the judgment of Gilligan J. of the 31st May, 2013. In addition, by his order made on the 21st January, 2014, the Appellants were granted liberty to amend their pleadings to include a pleading that were it not for an error in interest applied to the account ? which error was corrected by the Bank and the amount overcharged refunded with interest ? the Appellants would not have defaulted on their loans. Thus, at that time, there were three issues to be determined in the trial. Subsequently, in submissions delivered to the Respondents shortly before the commencement of the trial, the Appellants raised a further issue in relation to the effect of s. 64 and s. 90 of the Registration of Title Act 1964 (?the Act of 1964?). Initially, the Respondents objected to this issue being raised given that it was not permitted to be raised by Gilligan J. and because it had not been pleaded. However, when the matter came on for trial before McGovern J., the Respondents withdrew their objection and the matter was considered and dealt with by McGovern J. Accordingly, there were four issues before McGovern J. to be considered, namely:

(1) the issue of securitisation;

(2) the alleged breach of the Central Bank Codes of Practice;

(3) the effect of s. 64 and s. 90 of the Act of 1964; and

(4) whether the error in interest calculation and consequent overcharging caused or contributed to the default of the Appellants on their loans.

Judgment of the High Court

8 It was contended by the Appellants that the Bank was not entitled to enforce loans that were securitised and in particular to enforce the Charge granted by the Appellants as security for such loans. Five of the Appellants' loans were securitised. Two were removed from the pool of securitised loans on the 16th November, 2011 prior to the appointment of the Receiver and the remaining loans were purchased from the special purpose vehicle used for the securitisation of loans on the 5th November, 2013. The Appellants did not dispute that the loans were in default and the learned trial...