Judgment Title: Kavanagh & anor -v- McLaughlin & anor
Neutral Citation:  IEHc 453
High Court Record Number: 2012 11977 P
Date of Delivery: 30/09/2013
Court: High Court
Composition of Court:
Judgment by: Birmingham J.
Status of Judgment: Approved
Neutral Citation:  IEHC 453
THE HIGH COURT
[2012 No. 11977P]
Bank of Scotland plc
JUDGMENT of Mr Justice Birmingham delivered the 30th day of September, 2013.
1. The present proceedings involve separate claims by both plaintiffs. The first named plaintiff is seeking declaratory relief in relation to the validity of his appointment as receiver, while the second named plaintiff is seeking judgment in the sum of €4,022,734.92 on foot of loans advanced by Bank of Scotland Ireland to the defendants.
2. 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. Neither is there any dispute, at least for the purpose of these proceedings, as to the figures involved. However, a series of technical defences have been mounted.
3. In broad terms the arguments canvassed on behalf of the defendants is that at the time of the purported appointment of the receiver the loans were not due and this in circumstances where there had been a merger of Bank of Scotland Ireland Limited and Bank of Scotland Plc, a merger by absorption. Then, it is argued that even if the loans were due and there was a power to appoint a receiver, that Mr. Kavanagh has not been validly appointed essentially because the officer of the bank who appointed him had not been validly delegated with the power to do this.
4. So far as the merger is concerned, the defendants contend that the security for the loans issued by BOSI, the mortgages, were not transferred on merger and did not form part of the assets which were transferred as part of the Bank of Scotland Ireland Limited/Bank of Scotland Plc merger. Moreover, it is argued that the Bank of Scotland Plc is not the registered owner of a charge and that as a matter of law not being registered does not have entitlement to execute powers.
The loans had not fallen due
We may declare that an Event of Default has occurred upon or at any time after the happening of any of the following events and
(g) You break any of the terms and conditions of this agreement or
(h) You are in breach of the terms and conditions of any security given by you to us or
(i) You do not pay on time any of the amounts due under the agreement
If we declare that an Event of Default has occurred we may at (or any time after) the time of making the declaration
(a) Cancel any undrawn amount of the loan; and/or
(b) Demand immediate payment of the sums outstanding in which case the sums outstanding will become immediately due and payable by you (or declare that the sums outstanding shall become due and payable on demand; and/or
(c) Charge to you any costs and expenses incurred by us in enforcing our rights under this loan agreement or in protecting or enforcing our security,
(d) Charge interest on any arrears balance in accordance with the terms of Clause 5(c) hereof
Before declaring an Event of Default, we will serve a notice specifying the Breach and informing you what must be done to remedy the Breach in the time specified. If you do not remedy the Breach within 21 days of the service on you on the notice, we will then terminate the agreement and enforce our rights against you as set out above."
7. The argument is made notwithstanding the fact that on the 19th April, 2012 Byrne Wallace Solicitors wrote separately to each of the defendants. That letter .. identified their clients as Bank of Scotland Plc and identified the matter of the letter as six "Facility Letters". It began:-
No step will be taken in this regard, however, within the period of21 days next from the date of service of this notice on you.
Should the bank not receive full repayment of the said sum of€3,902,976.99 and accrued interest within the said period of 21 days from the date of service of this notice on you, then the Bank will, not less than 10 days thereafter proceed to enforce its rights, under the Facility Letters to recover this debt and/or enforce its right under the security held and without further notice to you. Please note you will remain liable for any outstanding debt, including any accrued interest, charges, legal, selling and other related costs, should the realisation of the security held not fully pay off any outstanding debt owed under the Facility Letters."
9. I can see no basis for contending that the necessary procedures have not been complied with. This is a case where the maxim qui facit per alium facit per se applies.
Developments of the cross-border merger
11. A number of points have been raised by the defendants arising from the merger. Essentially the defendants are contending that the mortgages and charges which Bank of Scotland Plc seek to rely on were not validly transferred to Bank of Scotland Plc by Bank of Scotland Ireland when these bodies merged. This contention is based on assertion that the mortgage does not constitute an asset within the meaning of Council Directive 05/56/E.C. of 26 October, 2005 on cross-border mergers of limited liability companies, O.J. L310/1 25.11.2005. Associated with this argument a question mark is placed over the validity of the European Communities (Cross-Border Mergers) Regulations of 2008. In that regard, the defendants had indicated a desire to involve the Attorney General in the present proceedings but that application was put in abeyance. However, the defendants seek to keep open the option of joining the Attorney General, even at this stage.
12. By way of preliminary observation in relation to this point, it may be said that it would seem a surprising state of affairs if security was not transferred. The situation is more surprising if one bears in mind that the transferring company, the company being merged, the company being absorbed, in this case Bank of Scotland Ireland ceases to exist. Accordingly, it is not a case of security being left behind in the original company but disappearing, dropping into the sea as it was put during the course of argument by the plaintiffs.
13. It is necessary to consider the terms of Council Directive 05/56/E.C. in some detail to see whether it in fact produces such a surprising outcome.
14. The first point of note is to be found in the opening recitals. Recitals 1, 2 and 3 provides as follows:-
(2) This Directive facilitates the cross-border merger of limited liability companies as defined herein. The laws of the Member States are to allow the cross-border merger of a national limited liability company with a limited liability company from another Member State if the national law of the relevant Member States permits mergers between such types of company.
(3) In order to facilitate cross-border merger operations, it should be laid down that, unless this Directive provides otherwise, each company taking part in a cross-border merger, and each third party concerned, remains subject to the provisions and formalities of the national law which would be applicable in the case of a national merger. None of the provisions and formalities of national law, to which reference is made in this Directive, shall introduce restrictions of freedom of establishment or on the free movement of capital save where these can be justified in accordance with the case law of the Court of Justice and in particular by requirements of the general interest and are both necessary for and proportionate to, the attainment of such overriding requirements." (Emphasis added in the case of each recital)
(a) all the assets and liabilities of the company being acquired shall be transferred to the acquiring company;
(b) the members of the company being acquired shall become members of the acquiring company;
(c) the company being acquired shall ceased to exist.
3. Where, in the case of a cross-border merger of companies covered by this Directive, the laws of the Member States require the completion of special formalities before the transfer of certain assets, rights and obligations by the merging companies become effective against third parties, these formalities shall be carried out by the company resulting from the cross-border merger.
4. The rights and obligations of the merging companies arising from contracts of employment or from employment relationships and existing at the date on which the cross-border merger takes effect shall, by reason of that cross-border merger taking effect, be transferred to the company resulting from the cross-border merger on the date on which the cross-border merger takes effect."
(a) all the assets and liabilities of the transferor companies are transferred to the successor company,
(c) the transferor companies are dissolved.
19. It seems to me that there is no rational basis for concluding that while loans transfer, the security underlying the loans does not. The value of the loan, the quality of the loan and indeed the nature of the loan depends on whether it is secured and what the nature of that security is. In my view there is no basis for interpreting either the Council Directive 05/56/E.C. or the Regulations of2008 so as to conclude that the security does not transfer with the loan. But if there was any ambiguity and I do not believe that there is, then a purposive interpretation could produce only one result.
Any other interpretation would make cross-border mergers impossible and in the case of a cross-border merger that somehow or other proceeded, damage the interests of shareholders and creditors alike. That cannot be so, rather it seems to me that the security granted for a loan is in fact an asset in the nature of a contingent asset.
20. In my view there can be no doubt but that the loan and the security which underlie it cannot be divorced. My views in that regard are reinforced by the very clear evidence that was given by Mr. Vincent Fennelly a former senior executive of Bank of Ireland.
21. Accordingly I reject the arguments that have been advanced in this regard on behalf of the defendants.
22. The position is clearer still if one has regard to the terms of regs. 19(1)(g) and 19(1)(h) of the Regulations of2008 which provide as follows:-
(g) every contract, agreement or instrument to which a transfer or company is a party, shall, not withstanding anything to the contrary contained in that contract, agreement or instrument, be construed and have effect as if-
(i) the successor company had been a party thereto instead of the transfer or company,
(ii) for any reference (however worded and whether express or implied) to the transfer or company there were substituted a reference to the successor company, and
(iii) any reference (however worded and whether express or implied) to the directors, officers, representatives or employees of the transferor company, or any of them, were respectively, a reference to the directors, officers, representatives or employees of the successor company or to such director, officer, representative or employee or the successor company as the successor company nominates for that purpose or, in default of nomination, to the director, officer, representative or employee of the successor company who corresponds as nearly as may be to the first mentioned director, officer, representative or employee.
(h) every contract, agreement or instrument to which a transferor company is a party becomes a contract, agreement or instrument between the successor company and the counter party with the same rights, and subject to the same obligations, liabilities and incidents (including rights of set off), as would have been applicable thereto if that contract, agreement or instrument had continued in force between the transferor company and the counter party, and any money due and owing (or payable by or to the transfer or company) under or by virtue of any such contract, agreement or instrument shall become due and owing (or payable) by or to the successor company instead of the transfer or company."
Charges not registered in name of Bank of Scotland Plc
"On the 17th September 2007 the Governor and Company of the Bank of Scotland ('GCBS') changed its named to Bank of Scotland Plc ('BOS'). Pursuant to European Communities (Cross-Border Mergers) Regulations 2008, Bank of Scotland (Ireland) Limited ('BOSI') merged with BOS on the 31st December 2010, at 23.59 hrs and all the assets of BOSI did vest in BOS. BOSI was thereby dissolved. Henceforth the following practices will apply.
(1) Discharges by BOS of BOSI and GCBS charges will be acted upon and the relevant charge cancelled, as if the discharge was by BOSI or GCBS.
(2) Charges dated on after the 1st January 2011 must be in the name of BOS.
(3) Charges prior to the 1st January 2011, in the name of BOSI, or prior to the 17th September 2007, in the name of GCBS, may be registered in the name of BOS.
(4) On application by BOS in any particular case, it may be registered in substitution for BOSI or GCBS as owner of individual charges, on payment of a fee of €40."
24. So far as para. 4 of the legal notice is concerned, he said that this provided an option in an individual case but that it was not a mandatory requirement. The attitude taken by the Property Registration Authority is not determinate of the issue but nonetheless, is of a considerable significance. It is, after all, the body that is primarily the Property Registration Authority accords with common sense. It reflects the fact that Bank of Scotland Ireland has ceased to exist and in the space where Bank of Scotland once stood now stands Bank of Scotland Plc. Accordingly, I am satisfied that the arguments raised by the defendants in relation to the non-registration of the charges in the name of Bank of Scotland Plc fail.
The receiver was not validly appointed
26. In order to assess the merits of the arguments advanced it is necessary to consider the sequence of events in greater detail. At the outset it is appropriate to draw attention to the provisions of the mortgage that are most directly in issue. Clause 8 provides as follows:-
8.1 At any time after the occurrence of an Event of Default or where the Secured Obligations have otherwise become due and payable the Bank may forthwith without any further demand on or notice to the Mortgagor exercise the statutory power of sale conferred on mortgagees by the Act free from the restrictions imposed by Section 20 thereof and Section 17 of the Act shall not apply to the mortgages and charges hereby created.
8.2 Immediately upon the Bank making demand upon the mortgagor for payment and discharge of the Secured Obligations or any part thereof (as and when the same shall have become due and payable) or immediately upon the the provisions hereof, the Secured Obligations shall be deemed to have become due within the meaning of Section 19 of the Act and this security shall immediately become enforceable and the power of sale and other powers conferred by the said Sections as varied or extended by this Deed and all other powers conferred upon the Bank by this Deed shall be immediately exercisable."
9.1 At any time after the power of sale has become exercisable whether or not the Bank has entered into or taken possession of the Secured Assets or at any time after the Mortgagor so requests, the Bank may from time to time appoint under seal or under hand of a duly authorised officer or employee of the Bank any person or persons to be receiver and manager or receivers or managers (herein called 'Receiver' which expression shall where the context so admits include the plural and any substituted receiver and manager or receivers and managers) of the Secured Assets or any part or parts thereof and from time to time under seal or under hand of a duly authorised officer or employee of the Bank remove any Receiver so appointed and may appoint another or other in his stead. If the Bank appoints more than one person as Receiver of any of the Secured Assets, each such a person shall be entitled (unless the contrary shall be stated in the appointment (to exercise all the powers and discretions hereby or by statute conferred on Receivers individually and to the exclusion of the other or others of them)."
29. It will be recalled that the relevant provision of the deed provides that:-
and Karla Alford Witness
Karla Alford Credit Risk Manager
Ireland Business Support Unit
(Italics indicate handwritten portion on document original).
There follows a signature which is illegible and then the document is witnessed by Brendan O'Reilly, accountant of Simmonscourt House.
36. I turn now to the question of whether Ms. Whitmore was a duly authorised officer or employee of the bank under whose hand, a receiver might be appointed. Ms. Whitmore gave evidence during the course of the hearing. From her evidence it emerged that she was a Senior Credit Risk Manager in Bank of Scotland, a position she took up in October 2011. Her evidence was that when she took on that role that she received authority or nomination to sign various documents on behalf of the bank. She signed the instruments of appointment in question and as far as she was concerned she was an authorised signatory and had the authority to sign the documentation. She had executed such documentation on a regular basis in the past, a fact that was known to her superiors, and the fact that she was signing and executing such documentation was logged and recorded and formed part of her job description.
37. The chain of authority which led to Ms. Whitmore, who took the decision to call the loans and complete the documentation required for the appointment of Mr. Kavanagh, has been considered in some detail. The chain begins with the grant of power of attorney on the 1st March, 2011 to Juan Columbas, Chief Risk Officer. The power of attorney included a provision as follows:-
(2) To approve, execute and deliver as the attorney on behalf of the bank such other documents (as a deed or otherwise) and to do all other acts and things on behalf of the bank in each case as the bank shall in his absolute and unfettered discretion deem necessary or desirable in connection with the purpose. (Mr. Woodhead) might at any time in connection with any specific named transaction or proposed transaction appoint one or more persons to act as a delegate attorney for the bank in his place."
38. It is important to note that Mr. Woodhead did not purport to appoint a delegate attorney rather, on the 26th April, 2012, he issued a document described as a letter of nomination. The document is headed, "Bank of Scotland Plc and Ireland Business Support Unit- Letter of Nomination to whom it may concern", and provides as follows:-
39. I am in no doubt that Mr. Woodhead's powers were broad enough to permit him to nominate authorised signatories. Authorising individuals to sign particular categories of documents over a particular period is a very limited delegation of function and in my view clearly comes within para. 2 of the power of attorney of the 2ih January, 2012 which had authorised Mr. Woodhead to do all other acts and things on behalf of the bank in each as he should in absolute and unfettered discretion think necessary or desirable in connection with the Ireland Business Support Unit Business of the bank. In that regard I find myself in complete agreement with what Ms. Lorinda Peasland, the solicitor called on behalf of the plaintiff to give evidence as to " English law, had to say on this topic. I should add that even had I been persuaded that some frailty attached to a particular link in the chain leading to the nomination of Ms. Whitmore to execute documents I would, without question, have concluded by reference to Ms. Whitmore's evidence that she was acting as agent of the bank and that her actions had been approved by the bank and ratified by the bank. The bank knew full well what she was doing and approved of it.
40. A further point was raised about the validity of the appointment of Mr. Kavanagh by deed, when Mr. Whitmore had not himself been nominated or appointed by deed. At the outset it is right to say that the documentation completed by Ms. Whitmore on the 28th May, 2012 purports to be a deed. As we have seen the document records in terms that it was executed as a deed on behalf of Bank of Scotland by Ms. Whitmore.
41. The defendants put before the court evidence from Mr. Richard Singleton, an English solicitor as to matters of English law. From his evidence, it appears to be the case that the power to execute a deed has to be conferred by deed. This requirement in English law in relation to the execution of a deed is in contrary distinction to the provisions relating to a delivery of a deed. The requirement of a deed to authorise the delivery of a deed was ended by s. 1(1)(c) of the Law of Property (Miscellaneous Provisions) Act 1989.
42. Mr. Singleton, also drew attention to the provisions of s. 44(1) of the Companies Act 2006 which deals with the concept of authorised signatories. It provides that:-
(b) By a director of the company in the presence of a witness who attests the signature."
44. Even assuming that the fact that Ms. Whitmore was not herself appointed by deed raised an issue as to her entitlement to execute a deed it is clear that the document completed by her on the 28th May, 2012 was a document in writing executed under her hand.
45. The question of whether a document intended to operate as a deed and purporting to be a deed but which for some reason cannot operate validly as a deed may nonetheless have validity was considered in the Windsor Refrigerator Company Limited v. Branch Nominees Limited case  1 All E.R. 277. In that case Lord Evershed M.R. having referred to various arguments that called into question the validity of a deed commented as follows at p. 280:-
46. In Jennings and Another v. Bank of Scotland and Another  IEHC 515, (Unreported, High Court, 5th December, 2012) McGovern J. was called on to consider an application brought pursuant to s. 316 of the Companies Act 1963 declaring that Mr. Wallace and Mr. Donohue did not stand validly appointed as receivers and managers over the assets of Diorama Limited. Mr. Wallace and Mr. Donohue having been appointed as receivers by the Bank of Scotland. The closing paragraphs of the judgment are on point:-
"The question is not whether these two gentlemen, when they put their names on this document, where purporting to execute a document under their hands as agents for the company, or had any authority to do so. The question, as I conceive to be, is: Can this document, albeit purporting to operate as a deed, but failing to do - can it none the less be the instrument of the company in writing? I have come to the conclusion that question ought to be answered in the affirmative".
12. In this case the bank contends that the document executed by Mr. Bruce was a deed. But even if it was not a deed, it is clear that it had all the requisite qualities to be an instrument in writing under Mr. Bruce's hand, and, for the reasons I have outlined above, I accept that Mr. Bruce had authority to create such an instrument.
13. I therefore hold that the receivers are validly appointed and I refuse the application to discharge them."
47. In this case the proceedings have been defended on technical grounds with great industry and ingenuity. However, in my view none of the points that have been raised either in oral or written argument provides a defence. Money was lent and has not been repaid. The money is due and owing. It follows that the plaintiffs are entitled to the orders that they seek. There is just one other topic that I should refer to even though it was not pressed as an issue. These loans were advanced for property development purposes. When they were advanced there was an expectation that the sale of one of the mortgaged properties Latona on Torquay Road, Foxrock would see the loans repaid. There has been a suggestion, which has never really been spelled out that because it has not been possible to sell Latona or the other properties that the bank was not entitled to call in the loans. Because the point has not been pressed I do not propose to say too much about this, save to say there does not appear to be any basis for suggesting that the bank was obliged to stand back indefinitely because of the difficulty in disposing of Latona and indeed the other properties.
48. In summary then the second plaintiff is entitled to judgment against the defendants in the amount referred to of €4,022,734.92. The first named plaintiff is entitled to a declaration that he stands validly appointed.