Supreme Court of Ireland Decisions
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Cite as: [2016] 2 ILRM 44, [2015] IESC 27
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Judgment
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THE SUPREME COURT [Appeal No: 473/2013] Clarke J. Laffoy J. Dunne J.
Tom Kavanagh and Bank of Scotland plc Plaintiffs/Respondents and
Patrick McLaughlin and Roseann McLaughlin Defendants/Appellants Judgment of Mr. Justice Clarke delivered the 19th March, 2015. 1. Introduction 1.2 There is no doubt but that the relevant loans have not been repaid. It was in that context that BOS appointed the first named plaintiff/respondent ("the Receiver") as receiver of some of the properties which were the subject of the relevant loans. 1.3 Disputes having arisen between the parties, these proceedings were commenced, in which the Receiver sought declaratory relief designed to confirm the validity of his appointment as such. BOS sought judgment in respect of the monies which were said to be owing on foot of the various loans. Both legs of the claim were successful, and the High Court (Bermingham J.) made an order declaring that the Receiver was validly appointed over certain properties specified in the order. In addition, it was ordered that BOS was entitled to recover a sum of €4,064,138.01 from the McLaughlins. An order for costs was also made against the McLaughlins. 1.4 The McLaughlins have appealed to this Court against those orders. The course that the appeal to this Court took is of some relevance to the way in which it is appropriate to approach the issues now before the Court. Therefore I propose to outline some aspects of that process. 2. Relevant Procedural History 2.2 On the basis of the importance of the point concerned, the Chief Justice acceded to an application that the case be afforded priority. Written submissions were exchanged in the usual way, and when the case came to be mentioned some short period before the date on which the appeal was listed to be heard, it was intimated that there had been a change of solicitor on the part of the McLaughlins, but that the appeal would still go ahead. However, on the morning of the appeal when the Court assembled, counsel (who had not previously been instructed in the case) appeared on behalf of the McLaughlins and indicated that he felt in some difficulty, by reason of the lateness of his instructions in the case, in being able to adequately present his clients' case. Counsel did not, in fairness, suggest that he would be unable to present the appeal, but rather indicated that he would not be able so to do as well as he might have wished. On that basis, an adjournment was sought. The adjournment was opposed by counsel who acted for both the Receiver and BOS. 2.3 Having taken a little time to consider the matter, the Court ruled that an adjournment would not be appropriate. I should record the reasons for the Court's view. This was a case in respect of which priority had been granted and an early date (at the expense of other cases) allocated. The only intimation of the need for an adjournment came at literally the last moment as the case was about to commence. While a party is more than free to change its legal representation, it cannot do so in circumstances which affect the run of the case or, at least, cannot do so without taking a significant risk that the court will not be sympathetic to an adjournment where that course of action would sufficiently affect the orderly conduct of the court's business (to the detriment of other litigants) and might also prejudice the interests of other parties to the case. It is important that parties realise that a change of legal team must be done in good time in order to allow the new legal team to fully prepare for the case. Unless there is some very compelling reason why the change could not have been effected earlier, a late change will not permit a legitimate argument to be made to the effect that the new team has not had an adequate opportunity to prepare. No reason was put forward to suggest that there were any extraordinary circumstances about the change of legal team in this case. In the circumstances, the Court declined to allow the adjournment. 2.4 Counsel had, as already noted, indicated that he would do his best in such circumstances, and the appeal proceeded. For the record, it is also important to note that counsel identified three issues, raised in the notice of appeal and expanded on in the written submissions, which were stated to be the principal grounds of appeal put forward, and the ones which would be addressed in oral argument. In so doing, it is important, however, to note that counsel was quite clear in indicating that he was not, by adopting that course of action, abandoning any of the other points raised in the written submissions. The Court is, therefore, faced with those three principal issues, but will also have to deal with the additional issues in respect of which counsel rested on the written submissions. I, therefore, turn to the issues. 3. The Issues 3.2 First, it was argued that the arrangements between BOSI and the McLaughlins were such that the bank (whether BOS or BOSI) was not entitled to call in the relevant loans until such time as a property known as "Latona", situated in Foxrock in Dublin, had been sold. "Latona" was the residence of the McLaughlins. They wished to move to smaller accommodation, and took out a so-called "bridging loan" to enable them to purchase a property known as 40 Kerrymount Rise. While further variations in the arrangements between the parties occurred at a later stage (including the provision of further loans for other projects), the core factual argument advanced on behalf of the McLaughlins at the appeal was that their arrangements with BOSI were such that it had been accepted that the loan in question could not be called in until "Latona" had been sold. A secondary issue arose under the same heading, which concerned whether the relevant loans were non-recourse so that any shortfall, arising in the event that the sale of "Latona" was insufficient to pay off the loans, could not be visited on the McLaughlins. I describe that as a subsidiary point because it appears to have arisen in the context of an argument about whether BOSI could be expected to wait indefinitely to have the loan repaid. It was in that context that it was said that it might be the case that BOSI could require a sale at a point in time when the realisable value of "Latona" was insufficient to pay off the loans, but that if BOSI made such a requirement, it would have to forgo any remaining balance of the loans in question. 3.3 Second, a separate point was made in respect of the registration of BOS as the registered owner of some of the charges which arise in this case. Some of the lands in question are registered land. No specific registration of BOS has been made as the new registered owner of the charge originally executed in favour of BOSI. It was argued on behalf of the McLaughlins that the failure of such registration means that, at least so far as registered land is concerned, neither BOS nor the Receiver can enforce the charge in question at this stage. Beyond those core issues are the additional questions raised in the written submissions, to which I will return in due course. 3.4 As can be seen the three core issues are really quite different in nature and can, therefore, be dealt with entirely separately. I, therefore, turn to the first issue which concerns the "Latona" point. 4. The "Latona" Issue 4.2 The starting point has to be to address the way in which this issue was approached both by the parties and the trial judge in the High Court. First, it is necessary to note the pleadings. The claim made in their statement of claim by the Receiver and BOS is relatively straightforward. Reference was made to five facility letters, each dated the 7th April, 2008, on which a variety of sums totalling €3,204,011.65 were said to have been advanced by BOSI to the McLaughlins. Further reference was made to what have been described as letters of amendment, dated between the 31st July, 2008, and the 1st August, 2008, which were said to have extended the terms of the earlier facilities. Later reference was made to various other documentation, which was said to vary or amend the relevant facilities. Thereafter, it was pleaded that the monies have not been repaid, and that the Receiver was appointed. On that basis, a declaration as to the validity of the appointment of the Receiver was sought, together with certain injunctions restraining the McLaughlins from interfering with either the Receiver or the relevant properties. A claim was also made on behalf of BOS for the monies said to be outstanding on the various loan agreements together with interest. 4.3 A lengthy defence was filed on behalf of the McLaughlins. Many legal issues have been raised, including the cross-border merger question, to which reference has already been made, and the absence of registration of the ownership of a charge or charges in the name of BOS. Other issues concerning the validity of the appointment of the Receiver were also raised. However, so far as liability to pay the monies said to be due on foot of the loans is concerned, it was said, at paras. 4 - 8 of the defence, that the later loans or credit facilities were no more than extensions of existing loans, and in particular, were not subject to any new or varied conditions. There was a blanket denial that the sum claimed was due, and BOS and the Receiver were said to be placed on full proof thereof. There was also a denial of any failure to pay. There is nothing, however, in the defence as filed, which suggested that a case was going to be made to the effect that the reason why the monies were not due was because of some arrangement or understanding between the parties that the monies would not become so due until "Latona" had been sold. 4.4 I do not note these points for the purposes of suggesting that these proceedings should be determined on a pleading point. No such suggestion was canvassed by counsel for the Receiver and BOS. However, it is always necessary to look at the documents which have been exchanged between the parties in advance of a trial in order to understand the course which the trial took. The purpose of pleadings, particulars, discovery and other pre-trial procedures and, where present, exchanged witness statements and written submissions, is to define the parameters of the case before the trial starts. The trial does not, therefore, start on a blank canvas. The way in which evidence is presented by either party, and the arguments addressed both on the facts and on the law will necessarily be coloured by the issues as they appear to be in advance of the trial. While BOS was, therefore, put on proof of establishing the debt, and was also alerted to the fact that the McLaughlins denied that there could have been any material change of terms during the course of the various facilities agreed, there was nothing in the pre-trial process which could reasonably be expected to have alerted BOS to the fact that a claim was being advanced about an understanding or collateral agreement, independent of the facility letters, which would have postponed the entitlement of BOS to call in the loans until "Latona" was sold. 4.5 Against that background, it is next necessary to turn to the evidence. First, it should be noted that the first named defendant/appellant ("Mr. McLaughlin") accepted that the relevant facility letters had been signed in circumstances where he had received legal advice. Next, it is important to note that the various loans, at least so far as the relevant facility letters were concerned, were all specified to be for a fixed period of time expressed in a number of months. In whatever way it might be appropriate to characterise the subsequent loans, each followed on from a previous loan (sometimes with variations where a new plan in respect of the properties had been devised), which amounted to allowing the same monies to continue to be borrowed for another specified period of months. It is in that context that a debate emerged as to whether the monies were truly due on foot of the final set of facility letters, or whether those letters were, in reality, simply extensions of existing facilities. For reasons which I will address, I am not at all convinced that that debate has any effect on the rights and wrongs of the case. 4.6 In any event, when pressed in cross-examination as to whether the final set of loans were not simply, as their terms provided, for a period of four months, Mr. McLaughlin answered:-
4.8 Insofar as evidence from BOS/BOSI is concerned, the principal witness called, being the official who was most closely involved in the matter, was a Mark Carney. In re-examination, Mr. Carney was asked whether "[i]t was envisaged by the Bank and by the Borrower that the sale of Latona would play a role in the repayment of the borrowings". In the context of that question, the answer was that it was a term of the original agreement but it was not a "specific agreement of the 2008 agreements". 4.9 Next, it is necessary to turn to how these issues, having been touched on in the evidence, were dealt with by counsel on behalf of the McLaughlins at the close of the hearing. First, it needs to be noted that, in his closing submissions to the High Court, counsel for the McLaughlins made no mention good, bad or indifferent of an argument to the effect that the loans could not be called in until "Latona" had been sold. However, the point goes further. Counsel did submit that the loan had not been called in and that the monies were not due, but a very different reason was given for making that suggestion. On day three, at p.54 of the transcript of the hearing, counsel said the following:-
4.11 But the matter did not even end there. Doubtless because the issue had been at least tangentially raised in the course of the evidence, counsel for the Receiver and BOS said the following in his replying submissions (at p.68 of the transcript, on day four):-
4.13 It follows that this "Latona" issue was not referred to in any way in the pleadings or in any other formal pre-trial documents designed to frame the case. The issue was only tangentially referred to in the course of evidence. Counsel for the McLaughlins made no mention of the point at all in his closing submissions, and despite the fact that counsel for the Receiver and BOS drew attention to the fact that no submissions had been made in relation to it, and suggested that the inference to draw from that fact was that it was not being pursued, no reply was made. In that latter context, it is important to note, as counsel for the Receiver and BOS fairly pointed out during the appeal, that in the course of an oral hearing, it is to be expected that counsel may omit to mention something that should have been dealt with. No court should impose an over-technical approach in these matters. But this is not a case of an inadvertent failure to mention a point. It is a case where the fact that the point was not pressed was drawn to the court's attention without any intervention on the McLaughlins' side to suggest that the Receiver and BOS were mistaken if they believed that the point was no longer being pursued. 4.14 Against that background, it is hardly surprising that the trial judge dealt very briefly with the matter in the course of his judgment, where he said at para. 47:-
4.16 However, in deference to the difficulties with which counsel for the McLaughlins was faced, and in the light of the fact that the trial judge did, in any event, go on to briefly consider the matter, I think it is appropriate that I should set out the reasons why I do not consider that this point had any merit in the first place. In that context, the starting point has to be the terms of the loan facilities. 5. The Facility Letters 5.2 Next, on the same page and under the heading "Security", the following is included at item (i):-
5.3 Insofar as the matter was raised at all before the High Court, the argument made seems to have been that all subsequent loan agreements were not truly new and separate agreements at all, but rather were simply renewals (sometimes with minor revisions) of the existing arrangements. I am prepared, for the purposes of the argument, to accept that point in favour of the McLaughlins. However, that point is only of some relevance if it can be said that the original agreement, as specified in the facility letter just cited, can in some way be said to impose different terms to the subsequent facilities. 5.4 Two things seem to me to be absolutely clear from that facility letter. First, it is for a specified period of time being, in that case, eight months from draw down. Second, there is nothing in the text of the agreement to suggest that the only means of repayment can or must be from a sale of "Latona". Rather, what the agreement says in its terms is that the McLaughlins' solicitor is to give an undertaking to pay off the loan on closing the sale of "Latona". That is a standard clause, the meaning of which is very obvious. It does not require any particular expertise in banking to understand its terms. The clause is under the heading "Security". It is, therefore, designed to provide the bank with security for its loan. The security is in the form of a professional undertaking by the McLaughlins' solicitors that they would retain, out of the proceeds of sale of "Latona", so much as was necessary to discharge the loan, and pay that sum over to (then) BOSI to pay off the loan in full. If, for example, "Latona" had been sold well within the eight month period of the loan, then that term would have required those solicitors, on foot of the undertaking, to pay it off early. But that term does not in any way require or imply that the loan was not to be repayable in the event that "Latona" was not sold. 5.5 There is nothing, therefore, in the terms of the original facility letter which suggests that BOSI had to wait until "Latona" was sold in order to be repaid. It was, indeed, the case that BOSI had to wait for eight months. In the absence of a breach of some other term of the agreement justifying early intervention, it would not have been open to BOSI to seek repayment within that eight month period, except to the extent of calling on the relevant solicitors to discharge their undertaking in the event that the property was sold. But there is nothing in that agreement to suggest that BOSI was not entitled to repayment in full after eight months irrespective of whether "Latona" was sold. Indeed, the existence of a specific period of eight months is completely inconsistent with the suggestion that the proper interpretation of the facility letter is that BOSI had to wait until "Latona" was sold, whenever that might be. Furthermore, it would be highly surprising, if there were to be an agreement which required a lending institution to wait until a property had been sold in order to be entitled to repayment, that there would not have been detailed arrangements as to what was to happen in the event that difficulties were encountered in the sale. 5.6 Be that as it may, it seems to me to follow that the question of whether there was, or could have been, any variation in the arrangements between the parties brought about as a result of subsequent facility letters does not arise. The original facility letter was for a specified period, and was most assuredly not one which required BOSI to wait until "Latona" was sold before the money could become due. Even if no change had been brought about by any subsequent security letters (which not only extended or renewed the term of the loan but also provided in some cases for additional facilities for other projects), the original facility letter does not give any assistance to the argument which the McLaughlins make under this heading. 5.7 That is not, of course, the end of the matter. The next question concerns the evidence given in relation to this assertion. However, that evidence must be seen against the backdrop of the fact that the written terms of agreement between the parties entitled BOSI (and, therefore, arguably BOS after the cross-border merger) to full repayment when the term of the relevant facility ran out. It is, of course, the case that further facility letters, extending the period of various loans for specified terms, followed. Each subsequent facility letter was, again, stated to be for a specific term, although the length of the terms varied. So far as the facility letters themselves are concerned, their meaning is clear. BOSI/BOS was prepared, from time to time, when a facility expired, to renew it by affording an additional facility for a further period of time. But there is nothing in any of those facility letters which suggests that BOSI/BOS was committing itself to continuing with the facility beyond the additional period agreed in the event that "Latona" was not sold during the relevant period. The backdrop to a consideration of the evidence must, therefore, be that, on the proper interpretation of the facility letters, BOSI/BOS was entitled to call in the loan at the end of any of the periods specified in the various facility letters. Those facility letters did not give to the McLaughlins any entitlement to any further extensions in the event that "Latona" was not sold. 5.8 The reason for emphasising that fact is to attempt to identify the legal basis for any argument to the effect that there was an agreement or arrangement or understanding, legally binding, between BOSI/BOS and the McLaughlins, to the effect that the various loans did not have to be repaid unless and until "Latona" was sold. Any such arrangement would have to have been collateral to the written facility letters. While it is, of course, the case that a court may, on the evidence, conclude that there was some agreement or understanding of sufficient certainty and clarity so as to vary the written terms entered into between the parties, it would be necessary, in order to establish that such a situation existed, that a very clear evidential and legal basis be put forward for suggesting that the written terms which had been signed up to by both parties did not apply. 5.9 It might, for example, be suggested that there was a sufficient level of specific agreement entered into between the parties to effect an oral variation in the terms of their written contract. It might be suggested that the conduct of a lender created an estoppel. Perhaps other legal bases might also be advanced. But each of the legal bases on which it might be argued that the Court should depart from the written terms of a contract require that very specific facts be clearly established on the evidence. 5.10 It is in that context that it must be recalled that no legal basis for departing from the terms of the written contract was, in fact, advanced at the trial at all. The height of the McLaughlins' case stemmed from a number of comments made in the course of the evidence of Mr. McLaughlin and evidence given during the cross-examination and re-examination of Mr. Carney for BOS. I propose to deal with the evidence of Mr. Carney first. Mr. Carney did accept, during re-examination, that it was his understanding that the earlier loans (i.e. those prior to 2008) did have a term which postponed the bank's entitlement to call in the loans until "Latona" had been sold. However, he suggested that that term was no longer present after 2008. There can be no doubt but that Mr. Carney was incorrect in his recollection of the terms of the facility letters. No such clause existed. No realistic interpretation of the facility letters could imply the presence of such a term. However, it might be that a trial judge might infer from the evidence of Mr. Carney that, despite his being mistaken about the terms of the written agreements, there was some understanding at some time between the parties about the postponement of repayment until "Latona" had been sold. 5.11 Next, it is necessary to turn to Mr. McLaughlin's evidence. When questioned about the specific term of months set out in the 2008 facilities (which were the facilities which, on the case made by BOS, were the operative facilities), Mr. McLaughlin said that that term needed to be seen in the context of the fact that there had been many renewals in the past. While that much is true, it does not seem to me to advance the McLaughlins' case at all. The fact that a lending institution may be prepared, from time to time, to renew facilities does not, certainly of itself, create any legal obligation on that financial institution to renew them again. Indeed, the suggestion that there could be any such legal obligation is entirely inconsistent with the fact that each renewal was itself for a specified period of time and was subject, in the event that there was to be a further renewal, to still later facility letters, which themselves were for specific periods of time. That pattern of periodic renewal for a specified period of time is, quite frankly, entirely inconsistent with the suggestion that the lender was under any continuing obligation to extend the loans beyond the repayment dates specified in the current facility. 5.12 Next, Mr. McLaughlin suggested that everyone knew, at the time when the original loan was extended, that the only means by which the McLaughlins might repay the loan was the potential sale of "Latona". That may well be the case. There may well be all sorts of assumptions made by the parties to a lending contract as to how the loan will be repaid. To take an absolutely simple case, a standard mortgage over 25 or 30 years may operate on the assumption that it will be repaid out of the income of the borrower deriving from what appears to be relatively secure employment. Everyone might well understand that the borrower would find considerable difficulty (if not impossibility) in meeting the repayments if they were to lose their employment and not be able to secure alternative work. But that is a far cry from suggesting that the lender would be obliged to refrain from calling in the loan just because the parties would have understood that the only means by which the loan could be repaid was if the borrower continued in employment. It is, of course, the case that codes of practice now oblige lenders to attempt to work through difficult periods such as the one which I have postulated. But that is a very different thing from a suggestion that, as a matter of the contractual terms between the parties, a lender is obliged to refrain from seeking to enforce a loan simply because the means, which might have been assumed to be the way in which the loan would have been repaid, no longer exist. 5.13 The height of the evidence was, therefore, to the effect that there might have been some sort of vague understanding or acceptance by the parties that some latitude might be given to the McLaughlins in the event that there was difficulty in selling "Latona". However, it must be emphasised that the sort of evidence which would have been needed, to establish a legal obligation on the part of the bank to refrain from calling in the loan until "Latona" had been sold, would have been altogether different from the evidence presented in this case. Vague assertions would have been a long way short of sufficient. The Court would need to have been satisfied of precise commitments given on behalf of the lender, on the basis of which the Court could assess whether those commitments amounted to an alteration in the legally binding rights and obligations of the parties appearing in the facility letters. Vague assumptions or "understandings" cannot displace the effect of written terms signed up to by the parties. A lot more is required to alter the legal effect of a written contract. 5.14 It is in that context that the finding of the trial judge, to which reference has already been made, must be viewed. Precisely because the matter was not pressed, it is not at all surprising that the trial judge dealt with it as briefly as he did. But if the matter had been pressed, then an argument would have to have been advanced on behalf of the McLaughlins as to the precise legal basis on which it was said that the terms of the facility letters had, in substance, been varied by some form of collateral agreement or conduct. The evidence would need to have been assessed on the basis of seeking to identify whether the legal requirements thus arising had been met. None of that was done. In substance, the finding of the trial judge amounted to no more than a general comment that, even if there were some form of understanding or arrangement, and even if (which, for the reasons already set out, is far from necessarily the case) that understanding or arrangement altered the legal rights and obligations of the parties, the evidence fell a long way short of establishing a commitment to refrain indefinitely from enforcing the loan until "Latona" was sold. 5.15 It is in that latter context that the final point under this heading arises. It concerns the suggestion that, perhaps, BOSI/BOS might have been entitled to insist on a sale, but if so doing, it would have to have foregone any entitlement to recover any shortfall. There is just nothing in any of the facility letters or in the evidence to suggest that BOSI/BOS had ever agreed to any such arrangement. It would, again, require very clear evidence of a legally binding commitment on the part of a lender (to the effect that a loan was non-recourse) to impose such an obligation where the written agreement between the parties does not make such lack of recourse clear. Parties do, of course, sometimes enter into non recourse loans. But such loans are usually carefully negotiated between borrowers and lenders and include very specific terms as to the precise recourse which the lender is or is not entitled to invoke. There is nothing of that sort to be found in any of the facility letters in this case. There is nothing in the evidence to suggest that any representative of BOSI/BOS ever agreed to any such arrangement. The height of the evidence was an assertion by Mr. McLaughlin as to what might be the consequence of the loan being called in at a time when the value of "Latona" was not sufficient to pay off the entirety of the sum then due. But such an assertion falls a very long way short indeed of the kind of evidence which would be needed to entitle a court to find that, contrary to the terms of a facility letter, a loan was truly a non-recourse loan, or that a lender was estopped from pursuing recourse beyond the assets secured by the loan. 5.16 Finally, I should not leave this aspect of the case without making one further comment. Counsel for the McLaughlins, not unreasonably, drew attention to the fact that it may well have been in the interests of BOSI/BOS at various stages to give the McLaughlins more time. That may well have been the case. If a borrower has no other means of repayment then, irrespective of whether any shortfall remains technically due and owing, a bank may face the risk of having to write-off, in practise, some of its debt if a secured asset is not worth enough to pay off the loan. Depending on the view of the market for an asset of the relevant type at the time in question, it may well make sense for a lender to wait, even if not legally obliged so to do. 5.17 But that is not the issue with which this Court is faced. This is not a question of whether it might or might not have made business sense for the lender to wait. It probably did. The issue for this Court is whether, in circumstances such as those which arise in this case, the lender is legally obliged to wait. It was suggested on behalf of the McLaughlins that, ultimately, the matter became something of a joint venture in the sense that it was in the interests of both lender and borrower to wait. Again, there may have been times when this was the practical reality. But this was not, in any sense, truly a joint venture. Obviously, any lender has an interest in getting back all, or as much of, the loaned money as possible. There may be many cases where it makes sense to work with a borrower in difficulty to attempt to achieve such a result. In that type of circumstance, both sides can benefit. The lender will recover more (or perhaps all); the borrower will be left with a smaller residual debt (or perhaps none). 5.18 But that practical fact does not alter the legal rights and obligations of the parties which are to be found in their contractual arrangements. This was not a case where the lender had "bought in" to a venture in the sense of contractual arrangements which allowed the lender any additional benefit from its success. It must be recalled that there can be such arrangements. So called mezzanine finance involves an arrangement in some form which gives a lender or investor a greater return if the venture succeeds beyond specified parameters. Likewise, perhaps, and depending on the terms, a lower return may have to be accepted if the venture proves unprofitable. But in a straightforward lending transaction, such as the one at issue in this case, the lender does not get any additional benefit no matter how successful the venture is. If the property crash had not occurred, and "Latona" had sold for a spectacular price, then, quite properly, the sole beneficiaries would have been the McLaughlins. BOSI would not have received an extra cent. But the flip side of that arrangement is that BOSI was entitled, in the absence of any clearly defined term to the contrary, to get back the money loaned in accordance with the terms of their agreement. 5.19 For the reasons already set out, the facility letters did not impose any contrary obligation. I am more than satisfied that the trial judge was not only entitled to but, indeed, obliged to find that there was far from sufficient evidence from which he could conclude that some form of legally binding collateral agreement, or other arrangement with legal effect, was in place such as would have prevented BOSI/BOS from enforcing what would otherwise be their entitlements under the terms of the facility letters. On that basis, the appeal under this heading would necessarily have failed, even if it were permissible for the McLaughlins to run such a point in the light of the manner in which the case was conducted in the High Court. I next turn to the question of the effects of the cross-border merger. 6. "Assets" and the Cross-Border Merger 6.2 The cross-border merger was made under the European Communities (Cross-Border Mergers) Regulations 2008 (S.I. No. 157 of 2008) ("the Irish Regulations") in Ireland and the Companies (Cross-Border Mergers) Regulations 2007 in the United Kingdom. The orders approving the merger in this case were made by the High Court (Kelly J.) on the 20th October, 2010, and, so far as Scotland is concerned, by the Court of Session on the 10th December, 2010. The effect of those orders was to ensure that all assets and liabilities of BOSI were transferred to BOS at 23:59 on the 31st December, 2010, and that BOSI then stood dissolved without liquidation and ceased to exist. 6.3 As pointed out by the trial judge, the central assertion made on behalf of the McLaughlins is that the relevant security does not constitute "an asset" within the meaning of Council Directive 2005/56/EC of the 26th October, 2005 on cross-border mergers of limited liability companies (O.J. L310/1 25.11 2005) ("the Directive"). There was, before the High Court, some question of seeking to join the Attorney General for the purposes of questioning the validity of the Irish Regulations, but that point was not pursued before this Court. 6.4 A starting point must be to consider the terms of the Directive itself. It is abundantly clear from the terms of Recitals (1) to (3) that the overriding purpose of the Directive is to facilitate cross-border mergers of limited liability companies governed by the laws of different member states. It is the very fact that difficulty would be encountered in attempting to secure the merger of corporate entities whose governing law is different that led to the desirability of the Directive in the first place. In the context of that overriding objective, it would indeed, as the trial judge suggested, be surprising if the way in which the Directive was formulated was such that it had the effect of not transferring securities held by one of the merging entities. While it is true, as counsel for the McLaughlins argued, that legislation, even European legislation which is required to be interpreted with significant regard to its purpose, may sometimes fail to achieve its object because of the means adopted, nonetheless it would require very clear wording to the contrary to create a situation where such an important part of the business of a particular type of company (i.e. any financial institution involved in secured lending) was not to transfer on foot of an otherwise valid cross-border merger. Indeed there could be similar consequences in the case of any company whose business includes reliance on security, such as, for example, commercial guarantees in the case of trading companies. 6.5 It must be recalled that one of the consequences of such a merger is that one or more of the entities involved are likely to cease to exist. Where, as here, the entity which ceases to exist (being BOSI) is the one in whose favour security is held, then it follows that, if the argument put forward on behalf of the McLaughlins is correct, that security can no longer be held by BOSI (because it has ceased to exist) nor by BOS (because it was not transferred). Thus it must, in substance, be accepted that a consequence of the McLaughlins' argument is that the involvement of a company holding security in a cross-border merger may lead to that security simply ceasing to have effect by virtue of it being neither capable of being owned by an entity which has ceased to exist, nor being transferred to another entity which is to continue in existence in the aftermath of the relevant merger. It cannot be doubted that such a result would have a consequence which was the direct opposite of the intention of the Directive (being to facilitate cross-border mergers). It would mean, in effect, that, despite there being no intention to be found to that effect in the wording of the Directive, the cross-border merger regime would have little or no application in the case of secured lenders. 6.6 It is then necessary to turn to what the substantive measures provided for in the Directive actually say. Article 2(2)(c) provides that a "company, on being dissolved without going into liquidation, transfers all its assets and liabilities to the company holding all the securities or shares representing its capital". In this case, BOSI was, by virtue of the court orders to which I have referred, dissolved without going into liquidation, and it follows that all of its "assets" and liabilities were to be thus transferred. 6.7 Article 14 deals with the consequences of cross-border mergers. It provides as follows:-
(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. 2. [...] 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 becomes 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, (b) [...] (c) the transferor companies are dissolved" 6.10 The evaluation to which reference has been made was, in this case, conducted on the basis of the balance sheet of BOSI as of 31st December, 2009. It was said that an examination of that balance sheet does not disclose that any securities are included as an asset. It is true that there is no specific line in the relevant balance sheet attributing any particular value to an asset in the form of security. 6.11 However, as counsel for the Receiver and BOS pointed out, those same accounts contain a clear statement of the accounting practice adopted. It is my understanding that the accounting practise mentioned is standard practice in accordance with relevant national and international accountancy requirements. In that context, it is necessary to say something about the nature of a secured loan. When a lending institution lends money to a borrower, normal accounting practice requires the accounts of the institution concerned to reflect the value of that loan by calculating the value of the anticipated receipts to be derived from the repayment of the loan (with interest) on the dates specified in the loan contract. That calculation does not, of course, have any particular regard to whether the loan is secured or not, or indeed, to the strength of any security. What appears on the balance sheet of the relevant financial institution is the value of the loan thus calculated. In the ordinary course, and provided that the loan is performing as planned, that sum will be recalculated each year to reflect any payments made and a value arrived at of the continuing payments expected to be made in accordance with the loan contract. 6.12 However, if the loan runs into trouble, then different considerations apply. There has, indeed, been a debate about whether previous accounting standards were sufficiently robust to deal properly with the way in which financial institutions ought to deal with potentially unperforming loans. But the debate about the precise mechanism to be employed, important though it is in other contexts, is not relevant for the purposes of this case. What is relevant is that a lending institution is required, in the context of a loan which may, in accordance with the relevant standards, need to be looked at because of doubts over whether the loan will be capable of being properly repaid, to re-evaluate the sum to be included in its balance sheet in respect of the loan in question. That requires an assessment to be made as to whether, and if so to what extent and when, some or all of the loan may be capable of being repaid. In that context, it is only common sense that security may potentially loom very large. A loan secured on a house which is valued at 90% of the sum outstanding must have a much greater likelihood of repayment (and thus value) than an entirely unsecured loan given to a borrower who no longer has the capacity to repay. Lending institutions are required to make provision in their accounts for any anticipated shortfall in the recovery of monies loaned. 6.13 The mechanism for determining when that exercise should be done has been the subject of review. But the broad requirement that such an exercise must be carried out has always been part of standard accounting practise. It simply reflects the fact that a lending institution has a much better chance of getting back some or all of the money advanced on a loan to an impecunious or financially troubled borrower where that borrower has provided significant security compared with a similar loan given on an unsecured basis. Even if, for example, in the latter case, a bank might be able to obtain judgment, convert that judgment into a judgment mortgage, and ultimately secure a sale of property for the purposes of seeking to repay its debt, that process could take a long time, might cost a lot of money and the bank might also find itself jostling in a queue of other unsecured creditors seeking payment. The whole point of security is that it puts the security holder at the head of the queue, at least so far as the relevant asset is concerned. The consequence of that fact is that the secured creditor is much more likely to be repaid. That, in turn, means that a proper assessment of the amount that needs to be written down in the lender's accounts to reflect the problematic nature of a loan may be significantly less in a case where the loan is secured than a case where a loan, which is otherwise identical, is unsecured. 6.14 Thus, while security does not form a separate line in a company's balance sheet, the availability of security has the potential to have a significant effect on the valuation of the loans which do form part of that balance sheet, at least in cases where loans run into trouble and where the lender has to rely on its security for the purposes of recovering the loan. 6.15 It must also be recalled that the only statutory purpose for the inclusion of information such as the balance sheet in the common draft terms is to provide an evaluation of the assets and liabilities of the relevant companies rather than to provide a list of those assets. That process does not, in any event, take away from the clear statutory language, to be found both in the Directive and the Irish Regulations, which requires that all assets be transferred. 6.16 I am not satisfied, therefore, that a failure to refer to security in the common draft terms would have affected the transfer of securities as an asset on the completion of the merger. The cross-border merger has been approved by the relevant courts. Unless and until (if it were to prove procedurally possible) those orders were annulled in some way, the cross-border merger remains effective and all of the assets are to be considered to have been transferred to the party contemplated by the merger documentation. 6.17 Even if there were some failure of proper inclusion of security in the common draft terms, it would not follow that a security asset not included was not thus transferred. Whether such a failure, if sufficiently significant, could or should lead to a revisiting of the validity of the cross-border merger itself is not a matter which was canvassed before this Court. However, I am not satisfied that the documentation fails to include security in any event. Provision had been made against loans in the relevant balance sheets. That provision would, in accordance with standard accounting practice, have included calculations which required an assessment to be made of the likelihood of recovering the loans in question. That assessment would, in turn, have required detailed consideration to be given to the status of any security. Indeed, as we are all aware from the experience of the National Assets Management Agency, many loans which were required to be transferred to that agency from the various banks concerned were valued at significantly reduced sums precisely because there was concern about the adequacy of the security for the loans in question. 6.18 The ordinary meaning of the term "asset", in the context of a company, must refer to any element of its business which has the potential to confer value. A non-performing loan will have its value significantly affected by the adequacy of any security. Security has the potential to significantly affect the value of any loan. It is, therefore, on any view, an asset in the sense in which that term is used in the Directive. 6.19 In passing, it is worth mentioning that the standard accounting practise adopted by BOS in this case is stated to have operated on the basis of making an individual assessment of the likely recoverability of large loans with a global or average assessment being made in respect of smaller loans. It can hardly be doubted that an individual assessment would necessarily involve looking at the security held. Likewise, any global assessment of a package of smaller loans would necessarily involve attributing considerable significance to whether the loans were secured or not and, indeed, some assessment of the average strength of any security in place. 6.20 As previously indicated, a result of the proper interpretation of the Directive and the Irish Regulations which led to the conclusion that an extremely important part of the practical business of a lending institution (and, indeed other companies) was not to be transferred in the context of a cross-border merger would be highly surprising. Such an interpretation could only be reached if there was clear wording in the body of the relevant measures which could lead only to an interpretation which had that effect. On the contrary, an analysis of the meaning of the term "asset" leads to the conclusion that it clearly includes security backing up loans, which loans themselves are part of the assets of the relevant lending institution. The security has the potential to have a significant effect on the value of those loans. It is, in that context, clearly an asset. The company is better off with the security than it would be if it had not security in place. For those reasons I am satisfied that it is absolutely clear that, amongst the assets which passed from BOSI to BOS on the cross-border merger coming into effect, was whatever security BOSI held in respect of loans which were transferred at that time. 6.21 In that context, it is finally necessary to note that, at the hearing of the appeal, counsel on behalf of the McLaughlins suggested that this Court might refer two questions to the Court of Justice under Article 267 of the Treaty on the Functioning on the European Union. The questions suggested were as follows:-
2. Are the references to "all … assets" of a transferor company in Article 2(a)(c) and Article 14(1)(a) to be interpreted as including (a) all contingent assets of the transferor company and all rights enjoyed by the transferor company under every contract, agreement or instrument to which the transferor company is a party and (b) all such contingent assets and rights even where no information as to their evaluation is contained in the Common Draft Terms?" 6.23 I cannot see that there is any sustainable argument to suggest that the term "assets" as used in the Directive does not cover the benefit of legal entitlements which have the capacity to enhance the overall value of the company, if only because they reduce the extent to which it may be necessary to write down the value of debts owed to that company (whether in the form of loans or otherwise), by providing an effective alternative means of payment. 6.24 I am satisfied that, at least insofar as it is relevant to the issues which arise in this case, the terms of the Directive are clear or, in the words of the jurisprudence, constitute an "acte clair" (case 283/81 CILFIT Srl v Ministero della sanita [1982] ECR 3415). While, for the reasons already analysed, there is no specific mention of security as a separate line in the balance sheet contained in the common draft terms, nonetheless the availability of security has an effect on that balance sheet by virtue of reducing the extent to which it is necessary to make provision against non-performing loans. The fact that the relevant loans are secured has, therefore, an effect on that valuation by potentially reducing the provision which needs to be made in respect of non-performing loans. Even if, therefore, it were necessary to interpret the term "assets" by reference to the common draft terms, that would not exclude securities from being properly considered to be assets, for security affects the valuation of non-performing secured loans. In making that point, I should not be taken to accept, in any event, that it is necessarily appropriate to interpret the term "assets" by reference to the common draft terms. The purpose of the inclusion of an assessment of the assets of a company in those terms is to provide a valuation rather than to list the assets themselves. There is nothing, therefore, in my view, to suggest that the common draft terms could alter the clear statutory language contained in the Directive which is to the effect that "all assets" are to be transferred. 6.25 In those circumstances, it seems to me that the McLaughlins' appeal under this heading should be dismissed, and that it is not necessary to make the reference sought. I next turn to the issue concerning the registration of the charge in the name of BOS. 7. The Need to Register BOS as Owner of the Charge 8. The Remaining Issues 8.2 Most of those issues were concerned with the validity of the appointment of the Receiver. The first such issue concerned the appointment of a Ms. Whitmore as an authorised signatory. That argument was raised before the High Court. The trial judge set out the relevant provisions from the security documentation in question between paras. 26 and 32 of his judgment. Thereafter, at paras. 33 and 34, he reviewed relevant case law. At paras. 37 and 38, the trial judge reviewed the specific documents relating to the appointment of Ms. Whitmore. Leaving aside the careful analysis by the trial judge of the chain of documentation which led to his conclusion that Ms. Whitmore had been properly appointed, Birmingham J. also held, at para. 39, that he "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". In my view, that is the end of the point. There was more than ample evidence on which the trial judge could have concluded that Ms. Whitmore had actual authority on the part of BOS. This is not, it must be recalled, a dispute between BOS and someone purporting to act on its behalf as to whether that person acted within the scope of their authority. This is a dispute between a third party and BOS in which BOS stands over the authority of the person who has purported to act on its behalf, and does so in circumstances where there was more than sufficient evidence to entitle the trial judge to hold that BOS had, by its actions, authorised the actions concerned. 8.3 A power of attorney, or any other formal type of authorisation was not necessary provided that, in truth, the relevant officer or employee was, in fact, authorised. On the basis of the trial judge's findings of fact, there can be no doubt but that this was the case. I would, therefore, reject the McLaughlins' appeal on that ground. 8.4 A second leg of the argument as to the validity of the appointment of the Receiver stemmed from the suggestion that, even if Ms. Whitmore had been lawfully appointed as an authorised agent, she was not authorised to execute deeds. The argument under this heading is that the power of attorney relevant to this case included a choice of law clause whereby English law applied to its construction. Evidence was called on behalf of the McLaughlins to the effect that, under English law, the power to execute a deed must, itself, be conferred by deed. However, that witness, an English solicitor called Mr. Singleton, agreed that, as the mortgage and charge in this case contained a choice of law clause in favour of Ireland, the question of whether a document purporting to appoint a Receiver was valid was a matter of Irish law. However, as the trial judge pointed out, the passage from the deed in this case already cited permits the appointment of a Receiver to be made either by deed or under the hand of a duly authorised officer or employee. In that context, I am satisfied that the trial judge was correct to conclude that, as a matter of Irish law, the appointment of the Receiver in this case did not have to be made by deed. Likewise, I am satisfied that the trial judge was correct to hold that a written document signed by an authorised officer or employee was sufficient to meet the requirements for the appointment of a Receiver even if it were to transpire that the relevant signatory did not have authority to execute a deed and the document purported to be a deed. Even though it is not a validly executed deed, the document is still in writing and signed by a person with authority. 8.5 It follows that neither of the technical points made concerning the validity of the appointment of the Receiver in this case are meritorious. The trial judge correctly determined that the Receiver was properly appointed. In my view, counsel for the McLaughlins was quite correct to rest his argument in respect of those points on the written submissions. 8.6 The final point raised in the written submissions suggested that the trial judge was wrong to conclude that a letter from Byrne Wallace, Solicitors, of the 19th April, 2012, satisfied the requirement under the relevant contractual arrangements between the parties that a notice must be served specifying a breach, and informing the McLaughlins of that breach and what had to be done to remedy it. This aspect of the case was dealt with by the trial judge between paras. 5 and 9 of his judgment. The case made in the written submissions, placing reliance on a passage from Bowstead & Reynolds, The Law of Agency, 19th Ed.(London, 2010) at p. 48, was that an agent could only carry out acts on the part of a principal if the relevant act did not involve a right conferred personally on the principal, "the exercise or performance of which requires discretion or special personal skill". But the act carried out by Byrne Wallace in this case was not to make a decision to call in the loan, but rather to act on the instructions of their clients, BOS, to communicate the calling in of the loan to the McLaughlins. As the trial judge pointed out, the act of demanding payment, on the instructions of a client, is a very different thing to the type of situation contemplated in the passage from Bowstead & Reynolds cited. I am, therefore, also satisfied that the trial judge was entirely correct in the conclusions reached on this point, and that the appeal of the McLaughlins, in that regard, must also be dismissed. 9. Conclusions 9.2 Likewise, I am satisfied that the security held by BOSI over the McLaughlins' properties was an asset of BOSI within the meaning of the Directive, which passed, on the coming into effect of the relevant cross-border merger, to BOS. I also agree with the judgment to be delivered by Laffoy J. in respect of the point raised concerning the registration or otherwise of charges over registered land as a result of a cross-border merger. 9.3 Finally, I am satisfied that none of the points which were canvassed in the written submissions, but which were not argued at the oral hearing, are of merit. I would, therefore, dismiss the appeal. Judgment of Ms. Justice Laffoy delivered the 19th day of March, 2015
The issue 2. In the interests of symmetry, I will use the same terminology as used by Clarke J. in his judgment. As outlined in paragraph 3.3 thereof, the issue being addressed in this judgment arises from the fact that BOS has not been registered as the owner of a charge over registered land created by the McLaughlins in favour of BOSI, which charge was transferred to BOS at 23.59 hours on 31st December, 2010 when the cross-border merger of BOSI into BOS by absorption took effect. The position of the McLaughlins is that, in the absence of the registration of BOS as owner of the relevant charge on the relevant folio in the Land Registry, BOS is precluded from enforcing that charge against the McLaughlins, including enforcement by way of the appointment of a receiver. While the principal focus of the submissions on behalf of the McLaughlins was on a property over which they gave security to BOSI the title to which is registered in the Land Registry, their argument also extended to other properties the title to which is unregistered and over which BOSI also obtained security from the McLaughlins. However, it was acknowledged that the argument carried less weight in relation to the properties the title to which is unregistered. Accordingly, the primary focus in this judgment will be on the secured property the title to which is registered in the Land Registry.
3. As with the other issues addressed in the judgment of Clarke J., the legal issue addressed in this judgment has the potential to be of significant importance well beyond the scope of this case, as it affects all securities over registered land acquired by BOS in consequence of the cross-border merger. Nonetheless, it is useful to illustrate how the issue arises by reference to some of the instruments on foot of which BOS claims that it has security over land from the McLaughlins and that it is entitled to enforce the security. Security documentation 5. By deed of mortgage and charge dated 31st March, 2006 made between the McLaughlins of the one part and BOSI of the other part (the 2006 Charge) the McLaughlins charged the property known as 40 Kerrymount Rise, Foxrock, then being all of the property comprised in Folio 155547F County Dublin, in favour of BOSI. A copy of Folio 155547F among the papers put before the Court disclosed that BOSI was registered as the owner of the 2006 Charge on Folio 155547F County Dublin on 19th April, 2006.
6. One of the two deeds of appointment dated 6th June, 2012 made by BOS by virtue of which the Receiver was appointed related to the securities created by the 2005 Mortgage and the 2006 Charge. In the operative part of the deed of appointment BOS, which was expressed to be acting in pursuance of the powers given to it under or pursuant to the 2005 Mortgage and the 2006 Charge and pursuant to every other power conferred upon it by statute or otherwise, appointed the Receiver to be the receiver over the property described in the schedule, namely, “Latona” and No. 40 Kerrymount Rise, Foxrock, which was described as “being part of the property comprised within Folio 155547F County Dublin” (Emphasis in original). Further, it was provided in the deed of appointment that the Receiver was to exercise all powers of a receiver given by the 2005 Mortgage and the 2006 Charge.
7. Both the 2005 Mortgage and the 2006 Charge were obviously based on the standard form of mortgage and charge used by BOSI. Both were in precisely the same terms, save as to the date thereof and the description of the secured property therein. At the commencement, BOSI was referred to as “the Bank” and it was stated that that expression included its successors and assigns.
8. The appointment of a receiver and his powers were dealt with in Clause 9 of the 2005 Mortgage and the 2006 Charge. Clause 9.1 provided that at any time after the power of sale had become exercisable BOSI might from time to time appoint any person to be receiver and manager of the secured assets, meaning, respectively, the property mortgaged by the 2005 Mortgage and the property charged by the 2006 Charge. The point in time at which the power of sale became exercisable was governed by Clause 8.1, which provided that the power of sale was exercisable at any time “after the occurrence of an Event of Default or where the Secured Obligations have otherwise become due and payable”. The “Secured Obligations” were defined in Clause 1 as meaning all monies, obligations and liabilities therein covenanted to be paid or discharged by the McLaughlins. “Event of Default” was defined in the same clause as meaning “the happening of an event under any loan agreement, facility letter or other arrangement with the Bank whereby the Secured Obligations become immediately due and payable”. On the basis of the upholding by Clarke J. in his judgment (at para. 8.6) of the finding of the trial judge rejecting the argument advanced on behalf of the McLaughlins that an “Event of Default” had not occurred before the Receiver was appointed, the position is that the power of sale was exercisable when the Receiver was appointed. The powers conferred on the Receiver were set out in Clause 9.4. It was provided that he had and was entitled to exercise all powers conferred by the Conveyancing Act 1881 in the same way as if he had been duly appointed thereunder. It was provided that, furthermore, and without limiting those powers, he had the powers itemised in the remainder of Clause 9.4, which were very comprehensive and covered, inter alia, taking possession of the secured assets, managing and carrying on a business, and selling the secured assets. In other words, as a matter of contract as between the McLaughlins and BOSI, the successors and assigns of BOSI were entitled to confer a wide range of powers, which were itemised in Clause 9.4, on the Receiver.
Judgment of trial judge
9. The trial judge dealt with the argument advanced on behalf of the McLaughlins based on the failure to register the charges in the name of BOS in paras. 23 and 24 of his judgment. His starting point was Article 14(3) of the Directive, which is quoted in the judgment of Clarke J. (at para. 6.7). He then considered Regulation 19 of the Irish Regulations and he quoted Regulation 19(2), which was incorrectly referred to as Regulation 19(1). He then stated:
10. Legal Office Notice No. 1/2011 addressed two different scenarios. One was a change of name by virtue of which BOSI became known as BOSI in 2007. That has no relevance for present purposes. The other was the consequences of the cross-border merger. Having excised the provisions in relation to the change of name, Legal Office Notice No. 1/2011, as quoted by the trial judge, stated as follows:
(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, . . . 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 . . . as owner of individual charges, on payment of a fee of €40.” Evidence of understanding of Property Registration Authority It is confirmed that BOS is in the same position as a transferee in s. 64(4) of the Registration of Title Act in relation to BOSI mortgages and purchasers and receivers appointed by BOS pursuant to BOSI charges will be registered without any requirement for re-registration of BOS.” 14. Regulation 19 of the Irish Regulations deals with the consequences of a cross-border merger. Although paragraph (1) is quoted in part in the judgment of Clarke J. (at para. 6.8) it is useful to reiterate that part in quoting sub-paragraphs (g) and (h) relied on by the Property Registration Authority. Paragraph (1) provides as follows:
(b) . . .
(c) the transferor companies are dissolved,
(d) . . .
(e) . . .
(f) . . .
(g) every contract, agreement or instrument to which a transferor company is a party shall, notwithstanding anything to the contrary contained in that contract, agreement or instrument, be construed and have effect as if -
(ii) for any reference (however worded and whether express or implied) to the transferor 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 . . ., 17. First, there was reliance on Article 14(3) of the Directive and Regulation 19(2) of the Irish Regulations. Secondly, Legal Office Notice No. 1/2011 was referred to, with emphasis on the word “may” where it appears in para. 3 and on Mr. Murphy’s evidence as to the understanding of the Property Registration Authority as to the effect of Regulation 19(1)(g) and (h). It was submitted that the trial judge was correct in his conclusion that the attitude taken by the Property Registration Authority was not determinative of the issue, but it was submitted that its view was premised on an incorrect proposition that the consequences of the merger were governed by the Irish Regulations when, in fact, the merger was approved under the relevant transposing legislation in the United Kingdom. In that context, Regulation 17(3) of secondary legislation in the United Kingdom which transposed the Directive, the Companies (Cross-Border Mergers) Regulations 2007 (the U.K. Regulations) was cited. That provision is, in substance, the same as Regulation 19(2) of the Irish Regulations in that it provides as follows -
Submissions on behalf of the Receiver and BOS 19. In support of their contention that it is not necessary for BOS to take any further steps as a pre-requirement to enforcing the securities transferred to it by the cross-border merger, the Receiver and BOS relied on Regulation 19 of the Irish Regulations, submitting that there is no requirement to make a further application to the Land Registry or the Registry of Deeds in order to be entitled to enforce the security, because following the making of what was referred to as the transfer order, BOS stepped into the shoes of BOSI. Reliance was also placed on Mr. Murphy’s evidence as to the understanding of the Property Registration Authority and also on the effect of Legal Notice No. 1/2011, which was interpreted as creating a permission, but not an obligation, to have BOS substituted for BOSI as the owner of the transferred charge on the relevant folio. Further reliance was placed on the second paragraph of the letter from the Interim Chief Executive of the Property Registration Authority quoted at para. 13 above. While it was recognised that the lex situs, in this case the law of Ireland, applies to security over immovables, it was suggested that, even absent the provisions of Regulation 19, the provisions of the Directive and the U.K. Regulations could also have the effect that BOS stands in the shoes of BOSI in relation to the ownership of the charges and that re-registration is unnecessary. It was suggested that the provisions of the Act of 1964 relied on by the McLaughlins are directed to situations in which a transferor and a transferee exist before and after the transaction and once again it was pointed out that BOSI no longer exists to effect a transfer for registration, which undoubtedly is the case. Finally, the Receiver and BOS cited a passage from the judgment of the High Court (McGovern J.) in Freeman v. Bank of Scotland Plc [2014] IEHC 284 in which an argument made by the plaintiffs in that case in reliance on s. 64 and s. 90 of the Act of 1964 was rejected, McGovern J. stating that there was no requirement to execute an instrument of transfer in that case, as the transfer occurred by operation of law, and, as there was no instrument of transfer, s. 90 had no application.
20. While the foregoing is a summary of the various bases on which it was submitted on behalf of the Receiver and BOS that there is no requirement that the 2006 Charge be registered in the name of BOS as the registered owner thereof on the folio for it to be effective and enforceable, the validity of the appointment of the Receiver was contended for on a narrower basis. It was submitted that, as was held in the Freeman case, in any event, BOS had a contractual entitlement to appoint the Receiver independently of the provisions of the Act of 1964. Discussion 22. It is important to emphasise that the only reliefs granted by the High Court in these proceedings by the order dated 16th October, 2013 were:
(b) a money judgment in favour of BOS against the defendants. 23. The provisions of the Act of 1964 which govern charges are principally contained in ss. 62 to 67 inclusive. Some of those provisions have been amended by the Land and Conveyancing Law Reform Act 2009 (the Act of 2009), which was in force when the cross-border merger took place just before midnight on 31st December, 2010.
24. Section 62 deals with the creation and effect of a charge on registered land. Sub-section (1) provides that a registered owner may, subject to the provisions of the Act of 1964, charge the land with payment of money and it further provides that “the owner of the charge shall be registered as such”. Sub-section (2), which has been amended by the Act of 2009, deals with the form of the charge and also provides that “until the owner of the charge is registered as such, the instrument shall not confer on the owner of the charge any interest in land”. Sub-section (6) is the provision which is of most significance for present purposes. In its original form it provided:
(b) for the words “under a mortgage by deed”, the words “under such a mortgage”. 25. Section 64 deals with the transfer of a charge. Sub-section (1) empowers the registered owner of a charge to transfer the charge to another person as the owner thereof, and provides that the transferee shall be registered as the owner of the charge. Sub-section (2), which has been amended by the Act of 2009, stipulates the form of the transfer but also, consistent with s. 62(2), it provides that “until the transferee is registered as owner of the charge, that instrument shall not confer on the transferee any interest in the charge”.
26. Section 90 of the Act of 1964, which was referred to in the judgment in the Freeman case, confers powers on a person on whom the right to be registered as owner of the charge has devolved in prescribed circumstances, for instance, by reason of an instrument of transfer made in accordance with the provisions of the Act of 1964, to transfer or charge the charge before he himself is registered as the owner of the charge, subject to certain qualifications. I am satisfied that s. 90 has no application to the issue of the entitlement of BOS, as successor to BOSI, to enforce the security which was transferred to it by operation of law on the cross-border merger against the McLaughlins.
27. Bearing in mind that the only issue which was determined in the High Court and, consequently, the only issue which arises on the appeal, in relation to enforcement of the securities given by the McLaughlins to BOSI which are now vested in BOS is whether BOS was entitled to appoint the Receiver, it is appropriate to consider that issue first by reference to the narrow argument advanced on behalf of BOS and the Receiver, namely, that BOS had a contractual entitlement to appoint a receiver independently of the provisions of the Act of 1964. Having regard to the terms of Clause 9.1 of the 2006 Charge, which has been quoted earlier, as a matter of contract between BOS, a successor in title of BOSI, and the McLaughlins, BOS unquestionably had power to appoint a receiver independently of the powers conferred by the Act of 1964. There is nothing in the Act of 1964 which limits or restricts the contractual power to appoint a receiver once it is exercisable. Accordingly, I am satisfied that the fact that BOS is not registered on the relevant folio as the owner of the 2006 Charge did not prevent it appointing the Receiver as Receiver over the registered property secured by that charge. To the extent that the fact that BOS was not registered as owner of the 2006 Charge forms the basis of the argument that the Receiver was not validly appointed, the McLaughlins fail in their appeal against the finding of the trial judge that their arguments in relation to non-registration of the charges failed to establish that the Receiver was not validly appointed. However, that conclusion goes no further than affirmation that the Receiver was validly appointed. It does not address how the Receiver might make title to the registered property the subject of the 2006 Charge, if he decided to sell that property, nor does it address whether BOS could effectively exercise its power of sale and give good title to a purchaser without being registered as owner of the charge.
28. While the conclusion reached in the next preceding paragraph resolves the registration issue insofar as it is raised on the appeal as a challenge to the validity of the appointment of the Receiver, I consider that, given the observations made by the trial judge, particularly in paragraph 24 of the judgment, in which he implicitly accepted the approach adopted by the Property Registration Authority, thus concluding that the registration of BOS as owner of a charge is not necessary to enable BOS, a successor of BOSI, to exercise its statutory powers, it is appropriate to address the broader arguments advanced on behalf of the McLaughlins.
29. The relevant provisions of s. 62 and s. 64 of the Act of 1964 which apply to the enforcement of a charge over registered land are mandatory. In s. 62(2), it is expressly provided that an instrument such as the 2006 Charge “shall not confer” on the owner of the charge any interest in the land until the owner is registered as such. Similarly, in the case of the transfer of a charge, subs. (2) of s. 64 provides that the instrument of transfer “shall not confer” on the transferee any interest in the charge until the transferee is registered as owner of the charge. While that provision is not of relevance in this case because the transfer took effect by operation of law, it is consistent with the crucial requirement for enforcement of a charge on registered land imposed by an Act of the Oireachtas. That requirement is contained in subs. (6) of s. 62 and it is that the owner of the charge be registered as such and, when registered, subs. (6) provides that the owner “shall, for the purpose of enforcing his charge, have all the rights and powers of a mortgagee”. Insofar as BOS has not applied to be substituted for BOSI on the relevant folios in accordance with para. (4) of Legal Office Notice No. 1/2011, it is BOSI which is registered on the relevant folios as the owner of the charges on registered land transferred to BOS with effect from just before midnight on 31st December, 2010. BOS is not registered as owner of the said charges and, accordingly, in my view, BOS does not meet the requirement of s. 62(6) and cannot exercise the powers conferred by that sub-section or avail of the protections afforded by subs. (9) and (10) of s. 62.
30. Further, in my view, neither the invocation of sub-paragraphs (g) and (h) of Regulation 19(1) of the Irish Regulations, nor the corresponding provisions of the U.K. Regulations nor any provision of the Directive, obviates the mandatory statutory requirement of registration as owner of the charge before the powers and protections afforded by s. 62 can be availed of. It is convenient to illustrate that by reference to the application of Regulation 19 to the 2006 Charge. Unquestionably, by virtue of sub-paragraph (a) of Regulation 19(1), the 2006 Charge did pass from BOSI to BOS and then, by virtue of sub-paragraph (c), BOSI ceased to exist. However, paragraph (1) of Regulation 19 is expressed to be subject to paragraph (2) thereof. Paragraph (2) is concerned with the effect of the cross-border merger on persons other than the transferor company and the successor company, that is to say, on third parties, such as the McLaughlins, and, as has been stated earlier, it reflects Article 14.3 of the Directive. Paragraph (2) provides that for the transfer of assets to be effective in relation to third parties, such as the McLaughlins, the successor company, in this case BOS, must comply with any special formalities required by law. Sub-paragraphs (g) and (h) of paragraph (1), which have been quoted earlier, must be read subject to the mandatory requirement of paragraph (2). It is true to say that the effect of sub-paragraphs (g) and (h) in this case was to put BOS in the shoes of BOSI as regards its contractual arrangements with the McLaughlins. To put it another way, sub-paragraphs (g) and (h) novate (without using that word in any technical sense) the contractual arrangement which had existed between the McLaughlins and BOSI, which is now a contractual arrangement between the McLaughlins and BOS. However, the special formalities required by the law of this jurisdiction to enforce the security must be complied with in accordance with paragraph (2).
31. The manner in which legislative provision has been made for the transfer of securities in the context of the transfer of business between lending institutions clearly suggests that, if the provisions of the Act of 1964 to which reference has been made above are left in place unaltered, they must be complied with. I propose illustrating this by reference to Part III of the Central Bank Act 1971 (the Act of 1971), which deals with transfers between licensed banks. Section 33 makes provision for ministerial approval of the transfer by a licensed bank of the whole or part of its business to another licensed bank. Section 33(1)(d) provides that, if the Minister approves of the scheme under s. 33, the provisions of s. 34 to 39 and 42 of the Act of 1971 shall, if, and to the extent only that, the scheme so provides have effect in relation to the transfer. Section 35 deals with transfer of any security. In s. 32, “security” is defined as including a mortgage, charge, debenture and suchlike. Section 35 provides in part:
32. Section 36, which is the significant provision for present purposes, then deals with the rights and obligations in relation to transferred securities and provides in part:
34. Provisions similar to ss. 35 and 36 of the Act of 1971 are to be found in other relatively recent Acts of the Oireachtas as outlined in Deeney on Registration of Deeds and Title in Ireland (Bloomsbury Professional Limited 2014) at para. 21.19. In some cases para. (a) of s. 36 of the Act of 1971 is replicated verbatim, for example, in s. 51 of the Trustee Savings Banks Act 1989, while in others the substance of s. 36(a) is applied. The most recent provision of that type is s. 107 of the National Asset Management Agency Act 2009, which provides in subs. (1):
(b) notwithstanding sections 62 and 64 of the Registration of Title Act 1964 , NAMA or the NAMA group entity has, in relation to any such charge, the powers of a mortgagee under a mortgage by deed, even though NAMA or the NAMA group entity is not registered as owner of any such charge,
(c) NAMA or the NAMA group entity has the powers and rights conferred on the registered owner of a charge by the Registration of Title Act 1964.” 35. Having regard to the foregoing, I am satisfied that, absent any specific statutory provision relieving BOS from the mandatory obligation of becoming registered as owner of a charge in respect of which it wishes to exercise any of the powers conferred, or to avail of any of the protections afforded, by s. 62 of the Act of 1964, it must become registered as the owner of the relevant charge on the relevant folio, if it wishes to exercise the statutory powers conferred by the Act of 1964. Summary of conclusions 37. As regards any further steps which require to be taken to enforce the 2006 Charge, for the reasons set out above, I have come to the conclusion, that, notwithstanding the manner in which the 2006 Charge became vested in BOS, if BOS wishes to avail of the statutory rights conferred by s. 62 of the Act of 1964 to enforce the 2006 Charge, it must comply with the requirement that it be registered as owner of the charge. That conclusion, which is obiter, is based on the absence of any legislation relieving a transferee in the position of BOS of the obligations imposed by s. 62.
38. As regards the security held by BOS from the McLaughlins over property the title to which is unregistered, for example, the security created by the 2005 Mortgage, no view is or could be expressed as to the effect of the absence of a provision relieving a transferee in the position from consequences in relation to priority of non-registration of a transfer in the Registry of Deeds partly because of the paucity of evidence as to the title position in relation to the secured properties before this Court but also because of the absence of submissions as to the effect of non-registration of a transfer in the Registry of Deeds.
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