Patrick McLaughlin and Roseann McLaughlin v Ennis Property Finance Ltd and Tom Kavanagh

• Jurisdiction: Ireland
• Judge: Ms. Justice Nuala Butler
• Judgment Date: 11 May 2022
• Neutral Citation: [2022] IEHC 286
• Court: High Court
• Docket Number: [2016 No. 9951 P.]

Between

Patrick McLaughlin and Roseann McLaughlin

Plaintiffs

and

Ennis Property Finance Limited and Tom Kavanagh

Defendants

[2022] IEHC 286

[2016 No. 9951 P.]

THE HIGH COURT

JUDGMENT of Ms. Justice Nuala Butler delivered on the 11th day of May, 2022

Introduction

1 This judgment deals primarily with an application by the defendants to strike out the plaintiffs' proceedings on a number of grounds including that they constitute an abuse of process and do not disclose a reasonable cause of action and because of the failure of the plaintiffs to prosecute the proceedings within a reasonable timeframe. The defendants also seek an order under s. 123 of the Land and Conveyancing Law Reform Act, 2009 vacating a lis pendens registered by the plaintiffs in the Central Office following the issuing of these proceedings in November, 2016 on the grounds that the proceedings are not being prosecuted bona fide or, alternatively, that there has been an unreasonable delay in prosecuting them. The first defendant is sued as the current owner of loans and of mortgages and charges relating to those loans over property belonging to the plaintiffs and the second defendant is sued as the receiver appointed by the first defendant's predecessor over certain of those properties.

2 There are also two other motions before the court brought by the plaintiffs. These are, in chronological order, an application for judgment in default of defence in favour of the plaintiffs and an application for an order directing the Official Assignee in Bankruptcy to oppose the defendants' motion seeking to strike out the proceedings on behalf of the bankrupts' estates. The latter motion was issued because, since the institution of these proceedings and the issuing of the defendants' motion, both plaintiffs were adjudicated bankrupt (in February, 2021). In circumstances where the need for the defendants to file a defence will only arise if the proceedings are not struck out, I do not propose to address this motion until after I have delivered this judgment.

3 The position in respect of the Official Assignee is somewhat more complex. Legally, once the plaintiffs were adjudicated bankrupt then under s. 44 of the Bankruptcy Act, 1988, all property belonging to them vested in the Official Assignee for the benefit of their creditors. Property is defined under the 1988 Act in a manner which includes “ things in action”. Under s. 61(3)(d) of the 1988 Act, an express power is conferred on the Official Assignee “ to institute, continue or defend any proceedings relating to the property”. In principle, a bankrupt no longer has locus standi to maintain proceedings in respect of their property after an adjudication in bankruptcy. Thus, as an automatic legal consequence of the plaintiffs being adjudicated bankrupt, their property, including their interest in these ongoing legal proceedings, vested in the Official Assignee who thereafter had the power to decide whether to continue or to discontinue the proceedings. On 7th May, 2021, the Insolvency Service of Ireland on behalf of the Official Assignee wrote to the solicitor acting for the defendants indicating that, having considered the pleadings, it had been determined that there would be no benefit to the estates of the bankrupts in continuing them and, consequently, the Official Assignee was consenting to the defendants' motion.

4 In the intervening period, the first plaintiff had brought an appeal to the Court of Appeal from the decision adjudicating him a bankrupt and the second plaintiff had brought an application to the High Court seeking to show cause against her adjudication in bankruptcy. The second plaintiff's application was dismissed by the High Court on 5th March, 2021, at which time the first plaintiff's appeal was still pending before the Court of Appeal and the second plaintiff subsequently brought a similar appeal. Consequently, the plaintiffs issued their motion against the Official Assignee on 22nd July, 2021 disputing the Official Assignee's conclusion that the litigation would not be of substantial benefit to their estates in bankruptcy and arguing that it was premature for the Official Assignee to allow the defendants' motion proceed unopposed while an appeal to the Court of Appeal as regards their adjudication in bankruptcy was still pending.

5 The defendants and the Official Assignee adopted a pragmatic approach to this application which facilitated the court in hearing the defendants' motion without having to hear and determine the plaintiff's motion against the Official Assignee in advance. The court was advised that it remained the Official Assignee's position that he was consenting to the defendants' motion to strike out the proceedings but, in light of the pending appeal to the Court of Appeal the defendants were not taking any point as to the plaintiffs' locus standi or consequent right of audience, both defendants agreed that the solicitor for the plaintiffs could oppose this motion on their behalf. Counsel for the Official Assignee remained in court during the hearing and provided helpful assistance to the court on procedural and technical aspects of the bankruptcy and insolvency processes. As it happens, this application was heard over two separate days in October and November, 2021 and, during the intervening period, the Court of Appeal (Haughton J.) delivered judgment dismissing the first plaintiff's appeal against his adjudication in bankruptcy [2021] IECA 292.

Procedural Background

6 The procedural background to this application is extraordinarily complex by virtue of the large amount of litigation the plaintiffs' loans have engendered. It is telling that nearly nine years ago, in delivering what has become the first of many judgments involving the plaintiffs and these loans, Birmingham J. stated “ So far as the claim for judgment is concerned it is a striking feature of this case that it is not in dispute that the sums in question were borrowed and have not been repaid” (see Kavanagh v. McLaughlin [2013] IEHC 453 at para. 2). The judgment then proceeded to deal with what Birmingham J. described as “ a series of technical defences”. Very little has changed over the succeeding years save that the plaintiffs' indebtedness has been reduced by virtue of the sale by the receiver of two of the four properties the subject of the litigation. Further, the plaintiffs do now dispute the amount of the residual debt contending that it should be reduced further by virtue, inter alia, of amounts which the receiver could have received as rent had the properties been let or let in a more advantageous manner during the receivership.

7 Going back to the beginning of what has, by now, become a saga, between July, 2005 and August, 2008, Bank of Scotland Ireland (BOSI) advanced monies to the plaintiffs by way of loans secured on three properties in South County Dublin, namely Latona on Torquay Road, No. 40 Kerrymount Rise (both in Foxrock) and 12 Hawthorn Manor in Blackrock. The plaintiff subsequently constructed another property, which is now their private dwelling house, at 40A Kerrymount Rise on a site which was previously part of the garden of No. 40 and which also became part of the security for their loans. Since the litigation started, there has been a dispute as regards the terms on which these loans were repayable and, in particular, whether there was an agreement that the loans would be discharged out of the proceeds of sale of Latona and consequently either would not or could not be called in until Latona had been sold by the plaintiffs (“the Latona clause”). This contention was rejected by the Supreme Court in the 2012 proceedings.

8 In 2010, BOSI merged with Bank of Scotland (“BOS”) under the EC (Cross-Border Merger) Regulations, 2008 (SI No. 157 of 2008) and Council Directive 2005/56/EC. That Directive provides a mechanism for the dissolution of a limited liability company without going into liquidation through the transfer of all of its assets and liabilities to another company holding the entire share capital and/or securities in the company being dissolved. The merger was approved in this jurisdiction by an order of the High Court (Kelly J.) on 22nd October, 2010 and in Scotland by the Court of Session on 10th December, 2010. The effect of those orders was to ensure that all of the assets and liabilities of BOSI were transferred to BOS at 23:59pm on 31st December, 2010 and BOSI then stood dissolved without liquidation and ceased to exist. The plaintiffs have already contended, unsuccessfully, in the 2012 proceedings that their mortgages were not part of the assets transferred by BOSI to BOS.

9 Subsequent to the merger, BOS called in the plaintiffs' loans and, when the debt was not repaid, appointed a receiver (the second defendant) on 6th June, 2012. The receiver was appointed over three of the four properties in issue excluding No. 40A Kerrymount Rise. Because the receiver perceived that the plaintiffs were interfering with the receivership, he and BOS issued proceedings against the plaintiffs in 2012 in which the receiver sought declarations as to the validity of his appointment and the bank sought judgment in the amount then outstanding on foot of the loans which exceeded €4 million. The plaintiffs (as defendants in those proceedings) raised a number of grounds in defence of the proceedings. These included asserting that the loans were not due, that the mortgages had not been transferred to BOS as part of the merger, that the receiver was not validly appointed and that BOS was not the registered owner of the charges and, consequently, did not have power to execute. The plaintiffs' defence was unsuccessful and, on 30th September, 2013, Birmingham J. gave judgment and made declarations as to the validity of the receiver's appointment and granted judgment to BOS.

10 The plaintiffs appealed to the Supreme Court...