Ireland: Irish High Court Clarifies Standard of Proof for Loan Purchasers

Purchasers of distressed debt have inevitably found themselves involved in legal disputes with borrowers seeking to undermine the loan purchaser's position as secured lender or at least put it on full proof of its entitlements.

In English v Promontoria (Aran) Limited the High Court (Murphy J) placed a stay on the appointment of a receiver, on the basis that the secured creditor had not put forward sufficient evidence to establish clearly its legal entitlement to appoint a receiver over the asset in question^[1]. It was not in dispute that Ulster Bank had been entitled to assign the debt.  Having noted that position, Murphy J stated:

"If, as in this case, it purports to exercise that right of transfer, then a complete stranger with whom the plaintiff [i.e. the borrower] has no connection can come knocking on his door claiming an entitlement to possession of his property. It appears to the Court that before ceding possession of his property, the plaintiff is entitled to insist that the stranger prove its entitlement to possession by showing that it duly acquired the interest of the bank in his loans and the security underpinning those loans, in particular, the mortgage on the property."

Stay on Receiver Appointment Lifted

In English v Promontoria (Aran) Limited (No.2), Promontoria succeeded in having the stay on the receiver's appointment lifted^[2] . After the first decision, Murphy J had given Promontoria an opportunity to produce further documentation to the plaintiff's lawyers, in order to persuade them of its entitlements. 

Failing that, the court allowed Promontoria to bring an application to have the stay vacated. The plaintiff, Mr English, did not put forward affidavit evidence to challenge the central contentions being made by Promontoria.  Rather, the plaintiff put forward a number of legal arguments as to why the evidence given as to the debt purchase was insufficient or, it was argued, revealed legal flaws in the intended loan sale.

For example, it was argued that proper notice of assignment (from Promontoria to the plaintiff) had not been proved, as required by section 28(6) of the Supreme Court of Judicature (Ireland) Act 1887.  The court held that proper notice had been given. 

The plaintiff also argued that a director who executed the instrument of appointment of the receiver was in breach of section 142 of the Companies Act 2014 which limits the number of directorships which a person may hold to 25. However evidence was produced that the director in question enjoyed an exemption in this regard which had been certified and was available in the Companies Registration Office.

Murphy J made the following observation on the plaintiff's technical arguments:

"All of the issues raised by counsel for the plaintiff would be properly and validly raised if the plaintiff were a party to the deeds with an entitlement to challenge their efficacy, but he is not a party to the deeds. He is a third party whose only entitlement is to be shown that the stranger knocking on his door claiming possession has in fact acquired the interests of Ulster Bank Ireland Limited."

Later in the judgment, Murphy J stated:

"There may well be frailties, defects or deficiencies in the arrangements between Promontoria in its various guises and the various Ulster Bank entities but that is not a matter of concern to the plaintiff. If any such issues exist, they lie between the parties to the deeds. The Court wishes to make it clear that it is not suggesting that such frailties exist."

 Murphy J took the view that Promontoria had:

"... underpinned its uncontroverted evidence by exhibiting the relevant portions of each deed and the entirety of the deed of conveyance and assignment of the plaintiff's mortgage. It has revealed the identities of all of those who executed the deeds or where relevant, affixed the seal of the company thereto. In addition, it has exhibited all relevant deeds of powers of attorney."

Murphy J noted that the plaintiff had been furnished with prima facie proof of the transfer and held that the plaintiff's failure to challenge deeds which are valid on their face amounted, in the court's view, to an acceptance of their validity, if only by inference.  Murphy J also stated:

"Deeds are not hearsay. They constitute real evidence of transactions between parties. On their face, all of the deeds exhibited are valid and show the transfer of the plaintiff's loan facilities and security [...]".

In relation to an argument that redaction of the loan sale documents prejudiced the borrower, Murphy J held:

"Counsel for Mr. English repeatedly suggested that the failure to reveal the redacted portions of the mortgage sale deed and the deed of novation could be prejudicial to Mr. English. The Court can see no prejudice. After all, Mr. English has accepted throughout that he was granted the loan facilities; that they remain unpaid; that he mortgaged his Knocklofty property to Ulster Bank Ireland Limited; and that Ulster Bank Ireland Limited had the right to transfer or assign his loans and security. That has now been shown to have occurred. The Court fails to see how he can be prejudiced in those circumstances, by ceding possession of his mortgaged property to a lawfully appointed receiver."

Conclusion

The overall tenor and outcome of the decision in this case should give some general comfort to the purchasers of loan portfolios that the court will, upon satisfactory proofs being furnished, take a pragmatic approach to unfounded and overly technical challenges to the underlying assignment and security.

Footnotes

^[1] [2016] IEHC 662

^[2] [2017] IEHC 322