Leahy v Bank of Scotland Plc

• Jurisdiction: Ireland
• Judge: Mr. Justice Garrett Simons
• Judgment Date: 05 April 2019
• Neutral Citation: [2019] IEHC 203
• Docket Number: 2016 No. 6718 P.
• Court: High Court
• Date: 05 April 2019

BETWEEN

MICHAEL LEAHY

KATHLEEN LEAHY

PLAINTIFFS

AND

BANK OF SCOTLAND PLC

PENTIRE PROPERTY FINANCE LIMITED, PEPPER FINANCE CORPORATION (IRELAND) LIMITED

TOM KAVANAGH

DEFENDANTS

[2019] IEHC 203

Simons J.

2016 No. 6718 P.

THE HIGH COURT

Banking and finance – Loan agreements – Transfer – Defendant seeking to dismiss proceedings on the basis that same were frivolous and vexatious and/or disclosed no reasonable cause of action – Whether the defendant acted unlawfully in transferring the plaintiffs’ loans to an unregulated entity

Facts: The first defendant, Bank of Scotland plc, applied to the High Court to dismiss proceedings on the basis that same were frivolous and vexatious and/or disclosed no reasonable cause of action. The essence of the claim made by the plaintiffs, Mr and Ms Leahy, against Bank of Scotland was that the bank acted unlawfully in transferring the plaintiffs’ loans to Pentire Property Finance Ltd in or about 20 April 2015. More specifically, the plaintiffs argued that the conditions of the loan agreements between Bank of Scotland and the plaintiffs precluded the bank from transferring the loans to an unregulated entity such as Pentire.

Held by Simons J that the plaintiffs’ claim against Bank of Scotland was bound to fail. Simons J noted that the conditions of the loan agreements entered into between the plaintiffs and Bank of Scotland’s predecessor in title, Bank of Scotland (Ireland) Ltd, expressly provided for the transfer of “the finance agreements” (as defined); moreover, the plaintiffs had not suffered any loss or prejudice as a result of the transfer of their loans in that the plaintiffs continued to enjoy precisely the same rights as prior to the transfer. Simons J held that the argument based on the alleged preclusion of a sale to an unregulated entity was misconceived. Simons J noted that the legislative amendments introduced under the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 had remedied what was perceived to be a lacuna under the previous regime whereby there was no requirement for an unregulated entity to comply with certain provisions of the Central Bank legislation. Simons J noted that the effect of the amendments introduced under the 2015 Act was that an entity which holds the legal title to credit granted under a credit agreement (as defined) must either (i) arrange to have credit servicing undertaken by an authorised credit servicing firm, or (ii) obtain authorisation itself; the amended legislation did not have the effect of retrospectively invalidating transfers to unregulated entities. Simons J noted that no steps were taken to enforce the security under the plaintiffs’ loan agreements between the date upon which the loans were transferred to Pentire (20 April 2015) and the coming into force and effect of the amended legislation (8 July 2015); in particular, the appointment of a receiver over the property the subject of the loan agreements did not occur until 19 February 2016. Simons J held that the plaintiffs’ claim for damages against Bank of Scotland could not succeed in circumstances where the plaintiffs were unable to point to any loss or prejudice caused by any act on the part of Bank of Scotland.

Simons J held that he would make an order pursuant to Order 19, rule 28 of the Rules of the Superior Courts 1986 dismissing the proceedings against Bank of Scotland. Simons J held that he would further direct that the pleas against Bank of Scotland in the second amended Statement of Claim be struck out.

Application granted.

JUDGMENT of Mr. Justice Garrett Simons delivered on 5 April 2019.

INTRODUCTION

1 This matter comes before the High Court by way of an application to dismiss proceedings on the basis that same are frivolous and vexatious and/or disclose no reasonable cause of action. The application is made by the first named defendant, Bank of Scotland plc (‘ Bank of Scotland’). The essence of the claim made by the Plaintiffs against Bank of Scotland is that the bank acted unlawfully in transferring the Plaintiffs” loans to Pentire Property Finance Ltd. (‘ Pentire’) in or about 20 April 2015. More specifically, the Plaintiffs argue that the conditions of the loan agreements between Bank of Scotland and the Plaintiffs precluded the bank from transferring the loans to an unregulated entity such as Pentire.

2 For the reasons set out herein, I am satisfied that the Plaintiffs” claim is bound to fail. The conditions of the loan agreements entered into between the Plaintiffs and Bank of Scotland's predecessor in title, Bank of Scotland (Ireland) Ltd., expressly provided for the transfer of ‘the finance agreements’ (as defined). Moreover, the Plaintiffs have not suffered any loss or prejudice as a result of the transfer of their loans in that the Plaintiffs continue to enjoy precisely the same rights as prior to the transfer.

3 The argument based on the alleged preclusion of a sale to an unregulated entity is misconceived. The legislative amendments introduced under the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 have remedied what was perceived to be a lacuna under the previous regime whereby there was no requirement for an unregulated entity to comply with certain provisions of the Central Bank legislation. In brief, the effect of the amendments introduced under the 2015 Act is that an entity which holds the legal title to credit granted under a credit agreement (as defined) must either (i) arrange to have credit servicing undertaken by an authorised credit servicing firm, or (ii) obtain authorisation itself. The amended legislation did not have the effect of retrospectively invalidating transfers to unregulated entities.

4 Crucially, no steps were taken to enforce the security under the Plaintiffs” loan agreements between the date upon which the loans were transferred to Pentire (20 April 2015) and the coming into force and effect of the amended legislation (8 July 2015). In particular, the appointment of a receiver over the property the subject of the loan agreements did not occur until 19 February 2016. The Plaintiffs” claim for damages against Bank of Scotland cannot succeed in circumstances where the Plaintiffs are unable to point to any loss or prejudice caused by any act on the part of Bank of Scotland.

5 The legal effect of the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 has been considered in a number of recent judgments, including Launceston Property Finance Ltd. v. Burke [2017] IESC 62; [2017] 2 I.R. 798; Hogan v. Deloitte [2017] IEHC 673; McCarthy v. Moroney; Moroney v. Property Registration Authority [2018] IEHC 379; and Geary v. Property Registration Authority [2018] IEHC 727. The law in this regard is clear, and the Plaintiffs” claim against Bank of Scotland is bound to fail.

FACTUAL BACKGROUND

6 Bank of Scotland (Ireland) Ltd. entered into two loan agreements with the Plaintiffs in 2004. Both loan agreements related to commercial premises consisting of nine completed units, two shell units, and two apartments at Kilkenny Street, Castlecomer, Co. Kilkenny (‘ the Property’).

7 The first loan agreement was executed by the first named plaintiff on 4 August 2004. The principal amount under the first loan agreement was €600,000. The signature page includes the following endorsement.

‘I further confirm that for the purposes of the Consumer Credit Act, 1995, in availing of the facility and drawing down of the loan I are (sic) acting within our business, trade and profession.’

8 The second loan agreement was executed by both the first and second named plaintiffs on 5 October 2004. The principal amount is €140,000. The signature page includes the following endorsement.

‘We further confirm that for the purposes of the Consumer Credit Act, 1995, in availing of the facility and drawing down of the loan we are acting within our business, trade and profession.’

9 Copies of both of the loan agreements have been exhibited as part of the affidavit of Hugh Catling sworn herein on 22 May 2018.

10 The loan agreements were subject to Bank of Scotland (Ireland) Ltd.'s General Conditions. A copy of these General Conditions has been exhibited by Mr. Catling in his affidavit of 22 May 2018. The following conditions are relevant to the arguments which are advanced on behalf of the Plaintiffs.

11 Condition No. 1, Definitions and Interpretation, includes inter alia definitions of the following terms.

‘“Finance Documents” means each of the Loan Agreement, the Security Documents and any agreements, documents, arrangements, letters or undertakings that may be entered into or executed pursuant thereto or in connection therewith and any one a “Finance Document”;

“Loan” means the loan facilities made available pursuant to the Facility Letter;

“Loan Agreement” means the Facility Letter and these General Conditions which are deemed to be expressly incorporated into the terms of the Facility Letter between the Bank and the Borrower.’

12 Condition 14 deals with Assignment and Transfer as follows.

‘14. Assignment and Transfer

14.1 The Borrower shall not be entitled to assign or transfer all or any of its rights, benefits or obligations under any of the Finance Documents.

14.2 The Bank may at any time, without the prior consent of the Borrower, assign, novate or transfer any of its rights and benefits and transfer any of its obligations under any of the Finance Documents to any person, firm or company or sub-participate or sub-contract any of its rights or obligations under the Finance Documents.’

13 Condition 27 provides as follows.

‘27. Law and Jurisdiction

27.1 The Loan Agreement shall be governed by, and shall be construed in accordance with, the laws of Ireland and the Borrower hereby submits, for the benefit of the Bank, to the jurisdiction of the Courts of Ireland for all purposes in the connection with the Loan Agreement.

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